The daily Gate City and constitution-Democrat. (Keokuk, Iowa) 1916-1922, 1920-01-31
INCOME TAX
Some Facts That People Who
VIII Have to Pay Will Want
to Know Are Given by
Officials.

! To the person whose income Is de-
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
in 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 bust
ness services, such as transportation,
storage, laundry, livery. and garage
service. In such cases the gross in
come 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,
according to the method of account
ing, in every business in which pro-
duction, purchase. or sale of merchan-
disc 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
include merchandise sold but not
billed to the consumer at the date of
tie inventory, and any goods out upon
consignment, unless such goods have
been included in the sales for the tax
able year. 1t should also include mer-
chandise 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
market" whichever is lower. Either
method once adopted must be followed
each year, unless permission to
change is obtained from the commits
sioner of internal revenue
How to Compute Inventories.
In computing net income a mer-
chant may find his profits on the fol-
lowing 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 bust
ness expenses, 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 merchandise, raw materials and
supplies, rent, repairs. light, power
delivery, selling cost, advertising, and
insurance.
No special system of accounts Is
prescribed 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.
Accounting System Urged =,
aside from the necessity of keep !
ing systematic accounts in order to |
comply with the governments re-
quirements, every progressive mer-
chant should adopt an approved &C
counting system for the good of his
own business" says Commissioner of |
Internal Revenue Daniel C. Roper "In
no other way can he further his finan-
cial interests more effectively. It has |:
been proven time and time again
that accurate accounts are absolutely /
to success in business The i
who has a good accounting
system is able to eliminate waste and
unnecessary expense, and can so con-
troll his credits as to greatly lessen his
chances of failure. The inventory. h
which can not be taken without some L
sorm of accounts, is the compass Of /
business. Without it the direction in |,
which the business is heading either
sor success of failure can not be
,L.d, L.