Norwich bulletin., 1920-01-12
INCOME TAX FACTS
 YOU SHOULD KNOW
No. I.


 To the person whose income is de- rived from business, the problem of making out a 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 he 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 afe 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.
 Annual Inventories Necessary.
 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. It should in clude merchancide sold but not billed to the customer at the date of the in- ventery, and any goods out upon con- signment, unless such goods have been included in the sales for the taxable year. It should also include nerchan- disc purchased. although not actually received, to which title has passed to the purchaser.
 Inventories may be taken either on the bases of "eost" or "cost of mar ket,' whichever is. lower. Either method ,once adopted must be followed each year. unless permission to change is obtained from the commissioner of i internal revenue.
 How to Compute Inventories. i In computing net income a merchant i 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- 1 ceIlaneous items. Then add together the inventory at the beginning of the year and the cost of goods purchased 1 for resale. From this sum subtract the ! inventory at the end of the year, and 1 the result is the cost of goods sold. 1 This cost, plus necessary business eX- penses, is to be deducted from the gross sales and other income and the result
  Typical deductible business expenses are for salaries. labor. cost of nler- chandise, raw materials and supplies rent. repairs light, power. delivery selling cost, advertising and insurance 1 No special system of accounts is prescribed by the bureau of internal revenue. but the books should show l in detail, inventories. purchase, sales capital investments. depreciation. and l similar items reduifed In making UT i the income. tax return.
 Accounting System Used. i Aside from the necessity of keeping 1 systematic accounts in order to com l ply with the governments require ments, every progressive merchant 1 should adopt an approved accounting 1 system for the good of his own 6usi- ness says Commissioner of 1nterna l Revenue Daniel c. Roper. Tn nc i other way can he further his fnancia 1 interests more effectively. It has beer proven time and time again that ac- i curte accounts are absolutely essentia to success in business. The merchaat who has a good accounting system is able to eliminate waste and unneces- sary expense, and can so control hi: l credits as to greatly lessen his chance! 1 of failure. The inventory. which caI not be taken without some form O accounts, is the compass of a busi ness. Without it the direction in wnicl the business is heading either for sue
 cess or failure cannot be determined