Then I would need to find my 2021 ending inventory total to use as my beginning 2022 inventory?
If you will be switching to COGS and tracking inventory, be aware of the following. The IRS doesn't do things the way most would expect when it comes to dealing with inventory. If you don't do this right, you "will" mess it up big time and have major issues later down the road. So please ask questions if necessary. Let me start by clarifying terms.
BOY Inventory Balance - Beginning of Year Inventory Balance. This is what "you" paid for the inventory in your physical possession on Jan 1 of the tax year. it does not matter in what year the inventory was purchased. Could have been purchased 50 years ago. In the first year dealing with inventory, then on your taxes your very first BOY balance must be zero. No exceptions.
EOY Inventory Balance - End of Year Inventory Balance. This is what "you" paid for the inventory in your physically possession on Dec 31 of the tax year. It does not matter in what tax year you purchased that inventory either.
COGS - Cost of Goods Sold. What "you" paid for the inventory you actually sold during the tax year.
When starting COGS, understand that your BOY balance must batch exactly the prior year's EOY balance. So if 2022 is your first year dealing with inventory, then you BOY balance must be zero. There are no exceptions. Since you did not report inventory in 2021, that's the only possible way for the 2022 BOY to match the non-existent 2021 EOY balance. If it does not match, then you have some 'splainin' to do to the IRS, and there is no acceptable explanation they will accept.
The way COGS works, is that what you paid for inventory is not deductible until the tax year you sell that inventory. So you'll want to keep track of what you pay, as well as what you sell. In other words, "first in, first out" so that you know the widget you sold was the one purchased in 1990 for $20, and not the one you purchased in 2005 for $50.
Here's a scenario shows "how it works" for the first two years.
In 2021 I had on hand 500 widgets that I purchased for $100 each back in 2010 before my widget business even existed.
First year (2021)
BOY Inventory Balance - $0 (Has to be zero, as there's no other way to match EOY of last year.)
COGS - $1000 (this is what I paid for the 100 widgets I sold in 2021)
EOY Inventory Balance - $4000 (This is what I paid for the widgets I did not sell in 2021, and still have possession of on Dec 31 of 2021)
The COGS amount of $1000 is deducted from my gross business income, so I don't get taxed on it.
Second year (2022)
BOY Inventory Balance - $4000 (This matches exactly my prior year EOY balance, as it should)
COGS - $5000 (what I paid for the inventory I actually sold in 2022)
EOY Inventory Balance - $3000 (What I paid for the widgets unsold and in my possession on Dec 31 2022)
With the above, it shows I started with $4000 of inventory. It also shows that I purchased an additional $4000 of inventory to bring my total amount of inventory for the year to $8000. During the year I sold $5000 of that inventory leaving me with $3000 of inventory left on Dec 31 of 2022. Only the $4000 of COGS is deductible from the 2022 business income, since I only sold $4000 worth of product.
Note that the above is very simplified. The program allows you to account for other ways that inventory can be reduced during the year. For example, loss, theft, breakage, inventory pulled for personal use, etc. etc. etc.
