The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1920-01-17
INCOME-TAX FACTS YOU SHOULD
KNOW


rived from business. the problem of
making. out correct income-tax re-
turn is greater than that presented to
the salaried man.
Business enterprises may be divided
into three classes-those engaged in
making, those engaged in producing,
and those engaged in trading. To
these may be added another class
those which do not produce, make, or
trade, and which may be designated
as business services, such as transpor-
tation, storage, laundry, livery, and
garage service. In such cases the
gross income would be the total
amount earned and received.
To reflect net income correctly and
to ascertain gross income, inventories
are necessary at the beginning and end
of each fiscal or calendar year, accord
ing to the method of accounting, in
every business in which production.
purchase, or sale of merchandise is an
income producing factor.
The inventory should include raw
material and supplies on hand that
have been acquired for sale or use in
production. together with all finished
or partly finished goods. 1t should in
clude merchandise sold but not billed
to the customer at the date of the in
ventory, and any goods out upon con-
signment, unless such goods have been
included in the sales for the taxable
year. 1t should also include merchan-
disc purchased. although not actually
received. to which title has passed TO
the purchaser.
Inventories may be taken either on
the basis of cost or cost or mar
ket" whichever is lower. Either
method once adopted must be followed
each year. unless permission to change
is obtained from the commissioner of
internal revenue
In computing net income a merchant
may find his profits on the following
basis:
First ascertain the gross sales and
the other items of gross income, such
as interest on bank deposits and mis-
cellaneous items. Then add together
the inventory at the beginning of the
year and the cost of goods purchased
for resale From this sum subtract the
inventory at the end of the year, and
the result is the cost of goods sold.
This cost. plus necessary business ex-
penses, is to be deducted from the gross
sales and other income and the result
is the net income of the business.
Typical deductible business expenses
are for salaries, labor, cost of mer-
chandise. raw materials and supplies,
rent. repairs, light, power. delivery,
selling cost, advertising, and insur-
ance.
No special system of accounts is pre-
scribed by the bureau of internal
revenue, but the books should show
in detail inventories. purchase, sales.
capital investments, depreciation. and
similar items required in making up
the income tax return.
Aside from the necessity of keeping
systematic accounts in order to COM
ply with the governments require
ments. every progressive merchant
should adopt an approved accounting
system for the good OF his own bust
ness, says Commissioner of Internal
Revenue Daniel G. Roper. I'm no
other way can he further his financial
interests more effectively. 1t has been
proven time and time again that &C
curate accounts are absolutely essen
tial to success in business. The mer-
chant who has good accounting sys-
tenn is able 10 eliminate waste and un-
necessary expense and can 50 control