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URL:  http://boards.fool.com/what-the-example-boiled-down-to-in-my-apparently-30281556.aspx

Subject:  Re: Inventory is income? Date:  9/25/2012  1:02 AM
Author:  Jeanwa Number:  116657 of 121061

What the example boiled down to (in my apparently muddled thinking) is that the poster was saying the equivalent of "unsold inventory = taxable income".


I should have said gross income, using net income was poor terminology on my part. I assumed, incorrectly that there were no other expenses.

Well, it is a bit more complicated than that. The left over inventory is really gross profit (some call it Profit from Sales and some call it Gross Margin)

From that we subtract all the other expenses. Utilities, Rent, insurance, etc.

Total Sales 200.00

Beginning inventory 0.00
Purchases 100.00

Ending inventory 25.00
__________
Cost of goods sold 75.00

Gross profit from Sales 125.00

Utilities 10.00
Rent 10.00
Insurance 10.00

Total Expenses 30.00

Net income 95.00



Does that help?

I still wish I could say it better.


If that were true, then each home buyer would record the sales price of the home as income the year of its purchase. After all, you know you're going to sell the home later, right? So if you haven't sold it, it's "unsold inventory".

You really can't make a comparison to a house. That said, in prior years the gain on the sale of a home was a capital gain. So people did keep track of what they purchased the house for, added the improvements they made. When they sold the Sale price minus the cost and improvement cost was capital gain income.

Technically. for example, if you sell your car at more than you paid for it you should report the difference as a capital gain.

FWIW, I'm glad you came here to verify what I said. I wish more posters did that.

Jean
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