- 19 - 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 thosePage: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
Last modified: May 25, 2011