I have taken on a new client for the first time. They are a very small company structured as a C Corp.
They do about 800K a year in sales and hold about 50-60k in inventory. I took over last year and had them do an inventory count at year end. what I found is they had a lot of negative inventory at the time. I am now preparing the tax return and my COGS calculation for the 1125-A is $6,017 short of what is on the Income statement. How would this be handled when doing the tax return?
If you are using an income statement to prepare the return, I'm a little confused on why your numbers don't agree. Was the 6017 the swing in inventory between years?
No, the 6017 is not the swing in inventory. it is the different between taking the beg inv. plus purchases less ending inventory and comparing that to to GOGS number on the income statement. My income statement number is 6,017 higher then the calculation. They do a very bad job and processing purchases and sales orders so I am not surprised it is off. I am thinking the best resolution is to change my purchase number on the 1125-A so the calculation matches the income statement.
If your COGS on Form 1125-A is $6,017 less than the income statement, the difference is usually due to inventory discrepancies (like negative inventory).
The IRS requires COGS based on actual beginning and ending inventory plus purchases, not just the income statement.
Adjust COGS on Form 1125-A to reflect accurate inventory counts; any prior errors should not be carried forward.
Document the adjustment and keep records of the inventory count for IRS reference.
[Content Removed] We help small businesses reconcile book vs. tax COGS, correct inventory errors, and ensure accurate 1125-A reporting for compliance and optimal tax treatment.
I am willing to listen to Pochahontas since she might talk my language better than the Englander. When I do an income statement, COGS kinda takes into account beginning and ending inventory, so I'm not sure what kind of income statement skips those facts. But then again, I learned my accounting skills from accounting classrooms not a lab. Although I guess if you are in a lab, you have the ability to create an accounting Frankenstein which sounds like what you end up with when you have inventory discrepancies.
You have clicked a link to a site outside of the Intuit Accountants Community. By clicking "Continue", you will leave the community and be taken to that site instead.
