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Cost of Goods (or Services) is a Direct Cost. This means it is Directly involved in the earning of the Income.
A Salesman's Commission is a Direct Cost. A factory line worker's payroll is a Direct Cost. This is because you can tie the cost Directly to the Good or Service sold.
In your case, the Food cost is your Direct Cost. If you are making a pre-packaged product for wholesale customers, then your employee payroll directly tied to the production is the same as a factory worker.
All other payroll (bookkeeper, janitor, etc) are Indirect Costs.
Other Indirect costs are Rent, Telephone, utilities (unless separately metered for the factory floor), etc.
One mentioned the accrual method. This is only good for "inventory" that is held for an extended period of time. This method you book the food into "inventory" when you receive it and then make adjusting entries to "expense" it as it's used. Since you probably won't have the food ingredients around for more than a month, tops, accruing is more work than it's worth.
Since Food is very perishable, don't bother with accruing the food purchases. Estimate what you normally have on hand at any given time and use this as your Beginning and Ending Inventory. Then, Expense the purchases directly when received.
As a bookkeeper, I have found this usually works out rather closely. The variance at year's end is usually insignificant.
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As for your "labor", this depends.
What kind of entity formation is this: Corporation, LLC, Sole Proprietorship?
If this is a Sole proprietorship (Schedule C) or an LLC defaulting to a Sole Proprietorship, you are never "on payroll". You are the business and therefore prohibited from being on payroll. Your "wages" are the businesses net profits.
If this is a Corporation and you are the "chief cook and bottle washer", then part of your payroll might be classified as Direct Costs if this is a manufacturing endeavor (pre-packaged food, remember).
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"I assume that I can include all of the supplies that I purchased to get my business off the ground (approx. $4500) as "business expenses."
This also depends. Often expenses to "Start Up" a company are considered "startup costs" and are "Capitalized". This means you can only take a portion as an expense each year - for 15 years. Equipment (like an oven or stove) Always are Capital Expenses and are Depreciated. Again, this means you get to take a portion over the "life" of the item. Startup costs can include: formation of Corporation or LLC costs, signage, "build out" costs (mostly cosmetic construction on an existing property), legal fees for trademarks, name research, etc.
For example, computers have a "life" of 5 years. So a $1000 computer is depreciated (using Straight Line) $200 per year for 5 years.
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I hope this helps.
But to be honest, you have a lot to learn and probably should find a good bookkeeper or accountant to consult. Or check your bookstore or library for books on running a small business and the accounting that goes with it.
It's better to pay someone to help with things you are not proficient in so you can concentrate on what you do best. but you always need to be aware of what's going on.
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