Golden Gate Litho - Page 19

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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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