Business income & COGS — EA Part 2 Widgets

What this does

How to read it Visual: inventory “tanks” and a COGS waterfall — LIFO usually means higher COGS in rising prices.

Watch out Inflation: late-year costs > early-year. FIFO ending inventory uses newer (higher) costs → lower COGS → higher income. LIFO opposite.

Build COGS from beginning inventory + purchases − ending inventory. Toggle FIFO vs LIFO to see how inflation changes taxable income.

Visual: inventory “tanks” and a COGS waterfall — LIFO usually means higher COGS in rising prices.

COGS calculator

Beginning inventory Purchases (net) Items available (units) Ending inventory (units) Early-year unit cost Late-year unit cost Gross receipts (3-yr avg) for small-biz test

Identification method

Results

Inventory tanks show how full ending stock is; the chart is the COGS equation.

COGS

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—Available

Goods available

—Ending

Ending inventory

—Sold

COGS (sold)

COGS waterfall · BI + purchases − EI

Ending inventory $

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Small-biz inventory relief?

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Exam trap: COGS = BI + purchases − EI. In inflation, LIFO generally increases COGS / decreases taxable income vs FIFO. Small business taxpayers (avg gross receipts ≤ $31,000,000 for 2025, not a tax shelter) may avoid formal inventories / UNICAP in many cases — verify Pub 334 / 538.

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Study tool only — not official IRS software. Figures labeled 2025 track law/forms through Dec 31, 2025. Confirm against current IRS pubs before the exam.