How do I track inventory and cost of goods sold in Seller Ledger?
Seller Ledger allows you to track inventory at the level of detail that is most comfortable to you.
Option 1: Balance-level tracking
Often called "Periodic" inventory management, this is the simpler way to properly track inventory and cost of goods sold. You only have to do a few things:
- Count/estimate the cost of all of your unsold inventory once per year (or quarter, or month - you choose)
- Track purchased goods/materials for resale throughout the year
- Do some simple math (or let Seller Ledger do it for you)
The IRS uses a simple formula to help you calculate "cost of goods sold", so you don't have to track individual item costs.
Cost of Goods Sold = Beginning balance + Purchases - Ending balance
See how this works in practice.
Option 2: Item-level tracking
While balance-level inventory tracking make it very easy to file taxes, it leaves out some important insights into your business. Item-level tracking (often called "Continuous" inventory management) requires quite a bit more detail, but can help you run your business smarter. For example, doing so will help Seller Ledger answer a pretty big question: how much money do you make on each order?
The key steps for this option include:
- Each time you purchase items for resale, record how many you bought and how much you paid, and assign a unique SKU value to that item/product.
- When that item/product sells, we will do our best to match it to your inventory record, reduce the quantity in stock, and calculate cost for goods sold for you - automatically
- For each sale, we'll show you your gross profit
Want to know more? See how this option works.
Not tracking inventory
Technically, there is a third option, which Seller Ledger has supported since launch. This option, while the simplest, is not recommended for most eCommerce sellers. Sometimes referred to as "cash-based" tracking for inventory and cost of goods, it means expensing the items you purchase for resale when you buy them.
Learn more about how this can be done in Seller Ledger.