Design the Chart of Accounts Before You Need It
Cannabis accounting in Arizona is decided long before tax season. Every cost account has to be tagged inventoriable or non-inventoriable at the point of setup, production costs need functional segmentation, and activity should be trackable by license, location and business line from day one.
A generic small-business chart of accounts cannot produce a 280E computation on demand, and rebuilding one after the fiscal year closes is precisely the kind of reconstruction that draws examiner attention.
Inventory Sits at the Center of Everything
In most industries, inventory is one line among many. In cannabis it simultaneously drives the federal tax computation, the ADHS compliance position and the balance sheet.
That calls for perpetual inventory reconciled against seed-to-sale records, unit costs applied consistently period over period, rotating cycle counts, and a documented valuation method reviewed on a set schedule.
- Perpetual inventory reconciled to seed-to-sale data monthly
- A documented valuation method applied consistently period to period
- Rolling cycle counts with a full physical count at period end
- Shrink and waste quantified and categorized, never simply absorbed into COGS
Running a Real Monthly Close
A cannabis close checklist covers bank and vault cash reconciliation, revenue tie-out to POS records, an inventory rollforward, accruals and prepaids, payroll reconciled to filed TPT and withholding returns, intercompany elimination for multi-entity operators, and a documented variance review.
Close on a fixed calendar every month. Books finished six weeks late are a history lesson; books finished on the fifth business day are a management tool.
Controls for a Cash-Heavy Operation
Segregation of duties, dual-control cash counts, defined approval thresholds, restricted system access and documented inventory handling procedures do two jobs at once — they reduce loss, and they demonstrate that reported income is complete if an ADOR or IRS examiner ever asks.
That second purpose gets underrated right up until an examination opens with an indirect method income reconstruction.
Reporting People Actually Use
Produce compliant statements for lenders and regulators, plus a short internal metric set: gross margin by category, cost per unit produced, inventory turns, labor as a percentage of gross profit, and cash conversion. Those five cover most operating decisions in this business.
A report nobody reads is overhead. A report that changes a decision is the entire point of building the function in the first place.
