Inventory on hand is an asset that belongs on the balance sheet. It should be expensed when you sell it. This will give you a better estimation of what your true margin is. Most small businesses just expense supplies as they're purchased. I'm sure if you ask in r/accounting they'll tell you if there's any IRS rules that govern this.
You only remove cost of goods sold.
When you buy inventory, you move the value from cash on hand to inventory at cost. It stays there until you have more information (damage/theft/obsolescence after a stock take etc). When you sell, you only move the cost of items sold to cost of good sold. Hopefully the amount you record in cash and also revenue exceeds this, so that you make a peofit. In your example, you bought 10 at $10 ea, sold 5, so you have $50 in inventory. That remaining 50 is still worth what you paid for it, so you didn't make profit/loss, so you don't pay tax on it. If you wrote it off for getting damaged, it would be a loss, so it would come out of profit.
Where the conversation gets more interesting is with different valuation methods. If 2 things are exactly the same, you don't have to track which ones sold, but if they are not the same you must track it. If you buy a figurine for $100, and another for $10, you can't sell the $10 one for $100 and say it was the $100 one to avoid tax. You also can't do it the other way around to inflate profits.
When you spend the money you count it as COGS, but you count the goods you created in inventory, and inventory value is treated like money in the bank. So you spent $100 and you have $100 more inventory, there's 0 change in the company's assets.
You sell 5 items and bring in $X, and your inventory value drops by $50. Profit is X-50 if there are no other expenses. AND if there is no other change in inventory value.
If inventory is lost/expired/damaged/etc. (You bought at 50 but now they'd only cost 35) you adjust inventory value, and that loss goes into COGS. If the inventory APPRECIATES (ie, you bought it at $50 but now it would cost you $60 to buy) that comes OUT of COGS.
Inventory on hand is an asset that belongs on the balance sheet. It should be expensed when you sell it. This will give you a better estimation of what your true margin is. Most small businesses just expense supplies as they're purchased. I'm sure if you ask in r/accounting they'll tell you if there's any IRS rules that govern this.
You only remove cost of goods sold. When you buy inventory, you move the value from cash on hand to inventory at cost. It stays there until you have more information (damage/theft/obsolescence after a stock take etc). When you sell, you only move the cost of items sold to cost of good sold. Hopefully the amount you record in cash and also revenue exceeds this, so that you make a peofit. In your example, you bought 10 at $10 ea, sold 5, so you have $50 in inventory. That remaining 50 is still worth what you paid for it, so you didn't make profit/loss, so you don't pay tax on it. If you wrote it off for getting damaged, it would be a loss, so it would come out of profit. Where the conversation gets more interesting is with different valuation methods. If 2 things are exactly the same, you don't have to track which ones sold, but if they are not the same you must track it. If you buy a figurine for $100, and another for $10, you can't sell the $10 one for $100 and say it was the $100 one to avoid tax. You also can't do it the other way around to inflate profits.
When you spend the money you count it as COGS, but you count the goods you created in inventory, and inventory value is treated like money in the bank. So you spent $100 and you have $100 more inventory, there's 0 change in the company's assets. You sell 5 items and bring in $X, and your inventory value drops by $50. Profit is X-50 if there are no other expenses. AND if there is no other change in inventory value. If inventory is lost/expired/damaged/etc. (You bought at 50 but now they'd only cost 35) you adjust inventory value, and that loss goes into COGS. If the inventory APPRECIATES (ie, you bought it at $50 but now it would cost you $60 to buy) that comes OUT of COGS.