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b. Adjustment for Accounts Payable
Under an accrual method of accounting, a liability is
incurred and taken into account in the taxable year in which
all the events have occurred which determine the fact of the
liability and the amount thereof can be determined with
reasonable accuracy. Sec. 1.461-1(a)(2), Income Tax Regs.
Thus, for purposes of accrual method accounting and
ascertaining true income for a given accounting period, an
expense must be deducted in the taxable year in which all the
events have occurred which determine the fact of the liability
and fix the amount of the liability, even though the liability
is not due and payable until a later year. Aluminum Castings
Co. v. Routzahn, 282 U.S. 92 (1930); United States v. Anderson,
269 U.S. 422 (1926).
Respondent increased petitioner's income by $78,464 to
reflect a reduction of petitioner's cost of goods sold to
account for purchases on the accrual method as follows:
Accounts payable at close of year, less $20,120
Accounts payable at beginning of year (98,584)
Reduction in cost of goods sold (78,464)
The adjustment for accounts payable was based on the
accounts payable reflected on petitioner's balance sheets for
the close of the taxable years ending May 31, 1990 and 1991.
Although respondent's counsel would not stipulate the accuracy
of the amounts reflected on the balance sheets, it is those
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