How to determine the cost of goods for inventory items that I don’t have receipts for? Old items bought a long time ago, lost receipts and so on… Should I estimate what the prices were?
In this situation, and with tax returns from the previous year that show no inventory on hand, I was advised to not figure it into my cost of goods sold because I have no proof of purchase.
For inventory accounting purposes, and using the FIFO method, I simply counted the inventory as I sold new inventory, but did not assign a cost to the “first out” inventory for COGS purposes..
So the first months of this year, I considered the “COST” of my goods sold to be $0. Now my overall COGS were not $0 because I still had eBay fees and shipping as my COGS, but just no cost was assigned to old inventory that I didn’t have receipts for.
I just did it by the book and took the hit by not giving myself credit for any inventory on hand that I didn’t have receipts for. Once all of my “first in”/ old inventory was accounted for, then I began figuring any inventory I had receipts for, into my COGS calculation. I was being overly cautious due to an IRS audit. Hope this makes sense.
It’s a complicated topic, and that’s why different accountants will advise you differently on this issue.
You can estimate costs if you like, but if you ever get audited by the IRS and you have counted these things, they will want an explanation of why. Perhaps you could provide that explanation. I just chose the conservative/cautious route.
When it comes to accounting, you can do your system, but you may have to justify and provide solid sound reasoning for why you chose your system.
I would suggest you talk to an accountant, and at the very least, look up specific IRS code that talks about this situation. You can call the IRS and they will direct you to IRS Code. Just my suggestion. Good question!!!
EBowie Bowie is the owner of Smart Money Bro.