How do I fix my inventory on hand?

Question – I have managed to really mess up my inventory on hand.   The main culprit seems to be my handling and confusion over returns.  I keep a spreadsheet with that I thought was pretty accurate but turns out not so much, so I’m going back and trying to fix it.  If something sells in January for instance, goes back to inventory (FBA), then resells in February, does the cost of the first or consequent sale become zero?  I’m thinking the first sale or in some cases the 2nd or 3rd until the sale sticks.

Answer – There is probably an easier way to do this.  What I suggest is to use your spreadsheet as a good estimate, but do a periodic physical count at year-end.  By doing that, you know your exact inventory and don’t have to worry if you tracked those returns perfectly.  In other words, when you do the inventory count, you’ll come up with inventory on hand and whatever is no longer on hand, whether through sales or returns you couldn’t resell, etc, is Cost of Goods Sold (COGS)

You don’t have to wait until year-end to do the count.  You could do it at any date if you are concerned about getting it precise now, but do double check at year end.

Once you know unsold inventory you can calculate COGS precisely.  You can do this by:

Taking beginning inventory from your prior year’s tax return or $0 if you started this year.
Add purchases
Subtract ending inventory
Which equals COGS