What is "cash-based" inventory tracking?

While not an official IRS term, "cash-based" inventory tracking stems from the general notion of "cash-based" accounting, as in, you recognize your revenue when you receive it, and recognize expenses when you pay them. That being said, this is a bit of a gray area, and we advise customers to speak with a CPA or tax professional to determine if this option is appropriate.

To use "cash-based" inventory tracking in Seller Ledger, you simply categorize inventory purchases using the "Cost of Goods Sold" category:

By doing it this way, you will see monthly and quarterly totals for "Cost of Goods" in your Profit and Loss report

and include those totals on Line 4 of the Schedule C: