Create an inventory and product-cost review

Map how products move

Document purchasing, receiving, storage, production if applicable, sales, returns, damage, and disposal. Give products consistent identifiers and define who records each movement. Separate goods owned by the business from customer property or consigned items. Review count procedures before the first count so staff know how to handle open boxes, goods in transit, and items being returned to suppliers.

Reconcile counts and investigate differences

Compare physical quantities with system records and examine missing receipts, duplicate shipments, unrecorded returns, breakage, and timing errors. Preserve count sheets, adjustments, approval, and reasons. Review slow-moving or obsolete items operationally rather than immediately assuming a particular tax write-off. Purchase history, ownership, condition, and the accounting method can affect treatment, so preserve evidence before an item is discarded or marked down.

Connect product economics with professional review

Track purchase costs and other relevant delivery or production inputs consistently so margin comparisons are meaningful. Discuss inventory requirements, cost of goods sold, available methods, and any proposed method changes with a qualified preparer. IRS accounting guidance includes rules and exceptions; eligibility for a simpler approach should be established rather than assumed. Use the operating data to improve reorder decisions and reduce cash trapped in excess stock.

• Define product identifiers and record every movement.
• Count consistently and document who approved adjustments.
• Investigate damage, obsolete stock, and ownership questions.
• Confirm accounting methods before changing tax treatment.