Inventory An inventory is necessary to reflect gross profit when the production, purchase, or sale of merchandise is an income-producing factor. However, if an inventory is necessary to account for your income, you generally must use and accrual method of accounting for sales and purchases, unless you are a small business taxpayer. Small business taxpayer. You are a small business taxpayer if you have average annual gross receipts of $25 million or less for the prior three tax years and are … [Read more...] about Inventory/ Cost of Goods Sold