if a company make some money on sales but use that profit to buy more inventory. at end of year, my inventory increase but i didn't take profit but still have to pay tax on the gross profit?
example:
gross : $60,000
total purchase : $40,000
begin inventory: 5,000
ending inventoy: 25,000
cogs = begin inventory + purchase - end inventory
cogs = 5,000 + 40,000 - 25000 = 20,000
net ordinary income = 60,000 - 20,000 = $40,000
so i have to pay tax on $40,000 even i use all money to purchase more inventory? doesn't make sense when i haven't take a dime out but pay tax on $40,000?
