Direct Sales Expense
(Canada)
Direct Sales Toy Inventory
Hello,
I started a direct sales business last year and I purchased toys to add to my demonstration kit. These toys are the same ones that customers can buy ie. are not samples and I can resell them if I want. Where do I claim the expense of all the items that were purchased for my kit?
If the toys purchased were to sell to your customers, then you have purchased inventory. Some points to remember about inventory are:
- Inventory sits on your balance sheet as an asset. You've made an investment in your product.
- Inventory cannot be expensed until it is sold. You can deduct your cost of goods sold (reduce your inventory) after each sale. This matches expenses with the revenue ... a generally accepted accounting principle.
- Personal use of inventory must be removed as an owner's draw/expense and not claimed as a business expense.
You can find out how to book the purchase and sale of your inventory here:
https://www.bookkeeping-essentials.com/management-skill.html#inventory1
You will find how to account for cost of goods sold, your inventory at year-end and your demonstration samples here :
https://www.bookkeeping-essentials.com/income-statement.html#cogs
https://www.bookkeeping-essentials.com/income-statement.html#adjinv
Once you've purchased inventory, you may want to calculate you some ratios to ensure you don't run into cash flow problems:
https://www.bookkeeping-essentials.com/ratio-analysis.html
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