I converted a previous hobby to a legitimate businees last year. It is a sports memoabilia business that utilizes a storefront on Ebay and Amazon. After a house fire and insurance settlement I had to purchase 75K in Items back in 2007 which I have all the receipts. For 2009 I have 30K in additional purchases. Last years sales were 25K with a year end inventory of 80K.

Question: When filling out the cost of goods sold Part III, do I use Zero as the beginning balance or do I use 75K? For line item 36, do I include the 2007 purchases? Am I correct in assuming this first year should result in a substantial loss due to the initial costs of inventory?

I will have no problem generating a profit going forward as I have already made well over 10K in sales YTD.

Appreciate any help.

Jim