eBay seller with an accounting issue [Tax related]

[Doctor]

Hi guys,

Thanks in advance for thinking this through with me.

I'm an online reseller. We are taxed as an S corp. We started with a set amount of start up capital, $75,000. We spent all of that money on our initial inventory, then we began selling it and reinvesting the proceeds into more inventory.

We take that money and buy more goods and sell them on eBay. Etc. Our business should be fairly simple as we only buy goods to be resold, we don't own any other property (for example I use my personal computer and my own home to work etc and I dont bother trying to deduct these types of things to keep the business simple). We use a system that automatically collects all of our transactions, it was formerly called OutRight but it was purchased by GoDaddy so it is called GoDaddy book keeping now.

So problem #1 is that when I buy an item to resell, GoDaddy book keeping marks it as cost of goods sold. However, I didn't sell it yet, so it should not be categorized there yet, correct? So I keep a spread sheet, and when I first buy something I let GoDaddy categorize it as cost of goods sold, but then I keep track of my inventory so I know how much of my inventory actually sold and how much of it didn't. Therefore, the sum of money I spent on goods to sell, minus the amount still in my inventory (that I havent sold yet), is my actual cost of goods sold. Right? Only the costs of items already sold?

So here is my problem. What do I do about the fact that my expenses exceed my revenue even though I have increased my assets? You may ask, how do my expenses exceed my revenue? Well, it is easy to see that my expenses can exceed my revenue by the amount of my seed money. However that doesn't mean that I lost the money! Imagine the first day I spent 75,000 on inventory, but I had no revenue at all, then my assets were still 75,000 because I just converted 75,000 from cash into inventory, but according to my accounting program my expenses were also 75,000 because I spent 75,000. This is what has happened to me, except instead of just having 75,000 I have that seed money + the profits from the entire year, mostly reinvested into more inventory.

Over the course of the year I have been selling items and purchasing new ones and then buying more. The result is that my revenue is $760,000 but my expenses are $800,000. However, I have $150,000 of inventory (which means my inventory has increased MORE than the amount of my "ordinary business loss" I must have made a profit, so how do I display that on my taxes? am I supposed to roll it in somewhere? It does not seem right that I can possibly have a loss for income????)

Help!

[Doctor]

Sigh, I found some big errors in OutRight where some large transactions were duplicated.

I think I may have figured out why there was a discrepency.