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Accrual Method for Inventory

I have a question on the Accrual Method and what it means for inventory tracking and reporting. I am self employed and have inventory I sell and also teach fitness classes as part of my business. TT says you are required to use the Accrual Method for inventory, so I chose "combination", that I used accrual for inventory and cash for other. So...for my expenses and income/payments I received from people, I reported them as income and expenses when the expenses and sales occurred (I think that means I did this on a cash basis). For my inventory, I entered the beginning (zero since new business) and the end at 2017, and then the cost. I am not sure if this is right for the accrual method or what that means in terms of my inventory. TT did NOT ask me to separate income from inventory vs. classes, so I just put total sales for income based on date sold.  Thanks!

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Catalyst V

Accrual Method for Inventory

In the cash receipts method of accounting, sales are recorded when payment is received, and expenses are recorded when paid.

In the accrual method, sales are recorded when the transaction is completed.  If payment is not received, an accounts receivable is made and the sale is still recorded.  Same for expenses.  When the transaction is completed, you deduct the expense, even if not paid.  A liability is created in accounts payable.

 

In regards to your inventory, you are correct. If this is the first year of the business, opening inventory is zero, record the purchases of inventory, and then subtract the ending inventory to arrive at cost of sales.

 

If your sales are related to your classes, they can all be on the same Sch C.  Gross receipts will be combined, subtract cost of sales, and you arrive at gross profit.