@chelsea15
Technically, if you re-sell a product, it should be put into inventory and not recorded as job supplies. You don't book the purchase of items for resale directly to COGS when purchased. The purchase should be recorded as inventory first, then to COGS when sold to your customer. The reason for this is that items purchased for resale are not an expense to your business until you sell them to your customer. It's what's known in accounting as the matching principle - matching your business expenses to the same period as the income those expenses produce. Think of it this way, let's say your company found a great deal on TVs this week and decided to buy $50K worth. If you record that purchase as job supplies, you will be deducting $50K from your income in 2022, but the income from those TVs won't happen until a future tax year. Therefore, depending on your business structure and taxable income, recording the purchase as job supplies, instead of inventory, may save you up to $18,500 in federal income tax in 2022. If you had properly recorded it as inventory, you would not get the deduction in 2022, you would get it as COGS when you sell the TVs to your customers in the future. If, however, you purchased the TVs in January and sold them all to your customers in the same year, your net income would be the same regardless if you record the purchase as job supplies or the items are put into inventory and expensed to COGS when sold. It's when you buy them in one tax year and sell them in a subsequent tax year that there's a mismatch between income and expenses and why accrual accounting is required.
This is why the IRS requires businesses where inventory is an income-producing factor, to use accrual basis accounting. There is an exception for Small Business Taxpayers, but that exception is not universally agreed upon in terms of whether you can treat your inventory as non-incidental material and supplies, thereby deducting the cost of inventory when purchased. It's a good idea to check with your CPA to confirm you are recording the purchase of inventory properly.
