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My client has begun a new business, and it involves shipping widgets to customers.

My client thinks I am wasting my time with my work involving the Inventory, of which
almost a million USD worth in my client 's storage.

When I said a physical count is required at the end of year, he did not like it.

Then he said the vendor will require payment only on the widgets sold.

Consignment?

Consignment is usually for used products. Are the widgets not new? Who owns the widgets? If it's your client, he has inventory, even if he hasn't paid the bills. He must have ordered them. How else would 1 million in widgets end up in his warehouse? Does he charge the vendor rent for the storage of 1 million dollar in widgets?

Does he charge the vendor rent for the storage of 1 million dollar in widgets?

no.

even if he hasn't paid the bills.

he has paid the vendor in full.

Are the widgets not new? Who owns the widgets?

the widgets are brand new, it is all electronics.
seems to me, title passes to buyer when bill is paid, so my client would own them.

i just wonder what is the angle here.

juro wrote:he has paid the vendor in full

juro wrote:he said the vendor will require payment only on the widgets sold.

Which is it?

juro wrote:
i just wonder what is the angle here.

Not sure what you mean with angle. From what you wrote your client has inventory. If not all widgets were sold, then end of COGS would be what he has in storage on 12/31/20 based on what he paid. It sounds like your client wants to deduct all his cost regardless if the widgets were sold or not. It's called Cost of Goods Sold, which should explain to your client what can be deducted.

sjrcpa wrote:

juro wrote:he has paid the vendor in full

juro wrote:he said the vendor will require payment only on the widgets sold.

Which is it?

he says a lot of baloney. i don't believe him. He is not a numbers guy.

Andrew wrote:

juro wrote:
i just wonder what is the angle here.

Not sure what you mean with angle. From what you wrote your client has inventory. If not all widgets were sold, then end of COGS would be what he has in storage on 12/31/20 based on what he paid. It sounds like your client wants to deduct all his cost regardless if the widgets were sold or not. It's called Cost of Goods Sold, which should explain to your client what can be deducted.

haha, he thinks Cost of Goods Sold is equal to inventory.

We dropped the subject. Maybe he would believe me if i were a pretty blonde?
anyways, i'm not bothering with any more counts. The culture is redneck as they come.

If they don't listen on this, drop them. Not worth the hassle. Numbers guy or not, they hired you to do work and you need to do it correctly. They are encouraging you to do it incorrectly to reduce net income.

I have a pretty extensive background with inventory. This clearly sounds like inventory to remain on B/S at 12/31/2020 with appropriate COGS on I/S, just as you were suggesting. I cannot think of a legitimate angle that has not already been mentioned.

Who's responsible for theft, fire, loss? I bet it's your client. They're likely his upon billing, not payment.

IF they really are on consignment, he should be able to easily prove it....

CornerstoneCPA wrote:Numbers guy or not, they hired you to do work and you need to do it correctly. They are encouraging you to do it incorrectly to reduce net income.

Interesting how the "not-a-numbers" guy is very aware of how to reduce his taxes ...

Who "owns" the Property?
When he goes to the Bank and applies for a (federally insured) bank loan,
on his application in the space/box that states....Inventory $__________.,
does he (has he) entered a rather large number to collateralize the debt?
If you see him entering $-0- on his tax returns (in cost of goods sold) yet
a big number representing the Inventory he owns when he borrows- he's in big trouble.