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Full Absorption Inventory Cost Method IRC Section 471

A taxpayer must include as inventoriable costs all direct (e.g., the cost of inventory and delivery, and the cost of materials and labor for manufactured inventory) and indirect production costs (e.g., rent and utilities related to inventory). Farmers are allowed to elect to use an inventory method of accounting rather than the generally applicable cash receipts and disbursements method. Reg. § 1.471–11, 6(a).