Gross Receipts and Cost of Goods Sold
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
Purchases, ending inventory, and deductible operating expenses belong in different parts of the return.
A tax-practice scenario
A retailer has cash sales, card processor reports, returns, purchases, and unsold goods. Reconcile receipts before computing COGS.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Using Form 1099-K as gross receipts without reconciling sales tax, refunds, cash, and duplicates.
Turn the rule into recall.
Tie books, bank activity, processor reports, and inventory records into one receipts reconciliation.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.