*2920 1. Held that petitioner's books of account were kept upon the accrual basis during the years 1921 and 1922.
2. An item of cash received by petitioner in 1922 in part payment of income earned and entered upon the books of the preceding year, is not income during the year 1922, since petitioner was on the accrual basis in 1921.
*767 This is a proceeding for the redetermination of a deficiency in income taxes for the year 1922 in the amount of $3,750.60.
The errors assigned are:
(1) The respondent has erred in computing the tax upon the accrual method of accounting instead of on the cash receipts and disbursements basis;
(2) Through the accrual methods used by respondent the income from petitioner's business is erroneously increased $16,751.67 for the year 1922; and
(3) A loss of $1,910.16 as claimed by petitioner on his return has been disallowed as a deduction by the respondent on the grounds that it was not incurred in petitioner's regular business.
At the hearing*2921 the petitioner abandoned the last assignment of error but was allowed to amend its petition to allege to following error:
The respondent erred in adding to petitioner's gross income for the year 1922, the amount of $3,000 received by petitioner from the House of Providence.
FINDINGS OF FACT.
The petitioner is an individual with place of business at Detroit, Mich. He is an architect by profession.
The Books of petitioner show that cash in an amount of $48,384.61 was received by petitioner in 1922, and that it was debited to the cash account and credited to the accounts receivable account.
On the books for 1921 the income was determined on the accrual basis. Charges at the end of the year representing estimated amounts of work completed but not yet billed to the client were debited to an account called "work in process," and credited to profit and loss account. Subsequently, during 1922, the charges were cleared out of *768 the work in process account. The accounting procedure for the year 1922 was the same. At the end of 1922 an amount of $16,358 was charged to the "work in process" account and credited to profit and loss. Petitioner received rent in advance*2922 and carried it as a liability. Petitioner also carried items of "prepaid expenses."
The business operated by petitioner did not involve goods and merchandise.
The petitioner, in its return, reported $48,880.92 as gross income from the business for the year 1922. Included in this amount was $3,000 received in cash in 1922 from the House of Providence in part payment for work done and charged upon the books prior to 1922. The respondent, in computing the deficiency for the year 1922, included this amount in net income.
OPINION.
SIEFKIN: The petitioner contends that the respondent erred in computing the tax upon the accrual method of accounting, instead of on the cash receipts and disbursements basis. As a result of the use of such method, petitioner alleges his income was erroneously increased by the amount of $16,751.67.
Section 212(b) of the Revenue Act of 1921 provides:
The net income shall be computed upon the basis of the taxpayer's annual accounting period * * * in accordance with the method of accounting regularly employed in keeping the books of such taxpayer * * *.
The books of account are in evidence and we are well satisfied from them and from the other*2923 evidence that the petitioner employed the accrual method of accounting in the taxable year and in the preceding year. It follows that the respondent has not erred in computing the tax upon the accrual basis. The petitioner further urges, in his brief, that in substance an amount of $16,358 income accrued upon the books as "work in process" but not billed to clients at the end of the taxable year should not be included in income even if he was upon the accrual basis, because it was not due and payable. There is no evidence that it was not due and payable and therefore correctly accrued.
The petitioner contends that an amount of $3,000 collected in cash by petitioner in 1922 in part payment of an account receivable has been included in income twice by the respondent.
We have found as a fact that the petitioner's books of account were kept upon the accrual basis in the year 1921. This item represents income earned and accrued upon the books in 1921, and we see no reason for presuming that it was omitted from the return for 1921. We conclude that it was not income in 1922.
Judgment will be entered under Rule 50.