The third article in a series of training articles that are a must read for all business owners, whether they are operating an on line home based business, or a regular home based business. The tips and suggestions are provided from real life situations as seen and experienced by the author.
If your home based business does not purchase goods for resale, then you will not need to know about Inventories and calculating Cost of Sales.
If , on the other hand, your home based business requires that you purchase goods on a regular basis for your own consumption or for promotional purposes, this does not constitute inventory. My next issue will make up for this issue being irrelevant to you by providing tips with regards to certain expenses that you may not realise you can use for your Home Based Business costs.
If you stock any products at all at year end you will need to count each different item that you have and place a value on the inventory, by multiplying the # of each item by the cost of each item and ending up with a grand total. When counting your stock you will need to include any items that you have purchased prior to year end but that have not yet been delivered to you.
To Calculate your Cost of Goods Sold you will need to know the value of your opening inventory and ending inventory. If you started your business during the year then your opening inventory will be "zero", otherwise your opening inventory will be the same as the ending inventory value for the previous year end. If the ending inventory is lower than the inventory at the beginning of the year, more goods were sold than purchased. If the value of your inventory increased by year's end, then more items were purchased than sold. Add total of Opening Inventory to total of purchases, then subtract total of Ending Inventory. This figure is then subtracted from sales of goods to provide your gross profit. Gross profit will then be reduced by deducting all other costs related to your home based business and you will end up with either a net profit or a net loss.
Note: Taxation legislation differs between countries and each country may change their rules at any time. The information provided in these newsletters is accurate at time of publication. You should however seek specific information from your Tax Advisor or Taxation Department as it relates to your own situation each year that you are required to provide Income and Expense Statements.
Other topics in this series are as follows:
Number 1, Record Keeping,
Number 2, General Expenses,
Number 4, Deductions for Use of Home,
Number 5, Home Entertainment Costs,
Number 6, Motor Vehicle Expenses,
Number 7, Depreciation Costs,
Number 8, Business Meals,
Number 9, Salary Payments to Children,
Number 10, Travel Expenses,
Number 11, Demonstrators Samples & Promotional Tools,
Number 12, Gifts,
Number 13, Here Comes the Tax Man,
Number 14, Capital Items,
John Ritchie,
Copyright to this article belongs to John Ritchie. http://johnritchie.blogini.com/. (Having Fun Making Money) Blog Site.
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