This year, Sarah started a business selling unique kitchen items both in-store and online. She purchased $70,000 of goods during the year. Her ending inventory was $8,000 and she owed suppliers $15,000 at year end, including for all of the ending inventory. For tax purposes, Sarah adopted the cash method and the treatment of inventory as nonincidental supplies. Her deduction for inventory for the year is:
A) $55,000.
B) $62,000.
C) $70,000.
D) None of the above.

Question

Quizplus · Accepted Answer

Under the cash method, Sarah can only deduct the cost of goods sold when she actually pays for them. Since she owes suppliers $15,000 at year end, including for all of the ending inventory, her deduction for inventory for the year is $70,000 - $15,000 = $55,000.

This Year, Sarah Started a Business Selling Unique Kitchen Items