Atlanta semi-weekly journal. (Atlanta, Ga.) 1898-1920, 1920-01-30
INCOME TAX FACTS
YOU SHOULD KNOW
No.

To the person whose income is derived
from business, the problem of making out
correct income tax return 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 en-
gagged in trading. To these may be added an
other class-those which do not produce
make, or trade, and which may be designated
as business services, such as transportation,
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 as
certain gross income, inventories are neces-
sary at the beginning and end of each fiscal
or calendar year, according to the method
of accounting, in every business in which
production, purchase, sale OF merchandise
is an income-producing factor. ~.
ANNUAL INVENTORIES NECESSARY
The inventory should include raw material
and supplies on hand that have been ac-
quired for sale or use in production, together
with all finished or partly finished goods. 1t
should include merchandise sold but not
billed to the customer at the date of the in
ventory, and any goods out upon consign-
ment, unless such goods have been included
in the sales for the taxable year. 1t should
also include merchandise purchased al
though 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" which
ever is lower. Either method once adopted
must be followed each year, unless permits
sion to change is obtained from the COM
missioner Of internal revenue.
HOW TO COMPUTE INVENTORIES
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 inter-
est on bank deposits and miscellaneous
items Than add tnpothpr the inventory q
the beginning of the year and the cost of
goods purchased for resale. From this
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 de-
ductible business expenses are for salaries,
labor, cost of merchandise, raw materials
and supplies, rent, repairs, light, power, de-
livery, selling cost, advertising, and lnsur-
ance.
No special system of accounts is prescribed
by the bureau of internal revenue, but the
books should show in detail Inventories pur-
chase, sales, capital investments, deprecia-
ton, and similar items required in making
up the income tax return.
ACCOUNTING SYSTEM URGED
aside from the necessity of keeping sys-
tematic accounts in order to comply with
the governments requirements, every pro-
gressive merchant should adopt an approved
accounting system for the good of his own
business" says Commissioner of Internal
Revenue Daniel c. Roper. "In no other way
can he further his financial interests more
effectively. 1t has been proven time and time
again that accurate accounts are absolutely
essential to success in business. The merchant
who has a good accounting system is able to
eliminate waste and unnecessary expense,
and can so control his credits as to greateIy
lessen his chances of failure. The inventory
which not be taken without some form
of accounts, is the compass of a business:
Without it the direction in which the bust
ness is heading either for success or failure
can not be determined"