*2905 A corporation which increases its book inventory to agree with a physical inventory, offsetting such increase by a "Reserve for invoices not received," has not thereby received additional income under such circumstances as are herein stated.
Before GRAUPNER, LITTLETON, and SMITH.
FINDINGS OF FACT.
1. The taxpayer is a New York corporation with its principal office in New York, N.Y. The taxes in controversy are income and profits taxes for the calendar year 1918 and amount to $2,842.21.
2. The taxpayer's books of account for the calendar year 1918 were kept upon an accrual basis wherein invoices (after checking by the purchasing department) were credited to the ledger account of the supplier, and the corresponding counter-entry made simultaneously charging stores with the value of the merchandise. Thus, "Accounts Payable" was credited for merchandise receipts and became the bookkeeping point of entry of material later found in inventories.
3. The taxpayer maintained a book inventory whereby stores account was*2906 charged with all merchandise received and credited with all merchandise issued to the various departments. At the close of 1918 a physical inventory was taken which amounted to $91,187.34. This amount was approximately $10,000 in excess of the book inventory at that time. Due to this discrepancy, the taxpayer set up a reserve for the $10,000, the account being headed "Reserve for invoices not received."
4. The Commissioner has eliminated the $10,000 shown in the "Reserve for invoices not received" but has accepted the change made by the taxpayer in its book inventory and has thereby increased the net income reported by the taxpayer by the amount of $10,000.
5. It is the contention of the taxpayer that the "Reserve" credits should not be disallowed without a corresponding elimination of the $10,000 debit by which the book entries were increased to agree with physical values.
DECISION.
The deficiency determined by the Commissioner is disallowed.