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The relevant phrase here (and often used) is: If inventory is a material component in the periodic determination of income, then inventory records must be maintained. Unfortunately, there is no exception for cash basis entities. This means that if you maintain more than a few days of inventory on hand you must keep inventory records and report opening and ending inventories, along with purchases, using form 1125-A. The difference between cash and accrual basis accounting methods lies in the recording of income and expenses but inventory itself is an asset. Therefore, you will need to report inventories. You have the choice of using cost, lower of cost or market, and a very few other methods to determine inventory values but, once a method is selected it must be used consistently year after year. The same holds true for accounting methods. Thus, if you elect cash or accrual basis you are required to continue with that unless certain conditions are satisfied to make a switch. You can read about changing accounting methods at www.irs.gov