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AUGUST 14,
1920
THE
MUSIC TRADE
REVIEW
HANDLING INSTALMENT SALES UNDER REVENUE LAW
Internal Revenue Department Issues New Ruling Covering the Keeping of Book Accounts of In-
stalment Sales—Information of Great Importance to Music Merchants Generally
The Legal Department of the Music Industries
Chamber of Commerce has just notified the
music industry that on July 28, 1920, the Internal
Revenue Department issued a new ruling (T. D.
3046) reconsidering its previous dictum and
adopting the following procedure where a tax-
payer engaged in merchandising upon the in-
stalment plan, who has heretofore made returns
upon, the basis of treating the profit upon in-
stalment sales as realized as at the date of
sale, now wishes to change to the basis of
reporting the profit as being realized as at the
date of collection of the outstanding accounts.
1. In accordance with the provision of Article
42 Par. 914) (as amended sic) of Regulations 45,
the balance sheet as at the beginning of the tax-
able year, which shall be filed as a part of the
return, shall carry the instalment sales contracts
unliquidated and remaining in force as at the
date that this system of accounting is adopted
and made effective by the taxpayer, as accounts
receivable, such unliquidated instalment sales
contracts having been inventoried and deter-
mined as at that date. Cash collections on ac-
count of such contracts will be credited directly
to such accounts receivable, and no part of
such collections will be included in computing
realized profits for the taxable year.
2. As from the beginning of the taxable year,
the following accounts should be set up:
(a) GOODS PURCHASED, which will be
charged with the amount of inventory of
the goods on hand at the beginning of
the taxable year and with the expendi-
tures for goods purchased during the
year.
(b) GOODS SOLD (cost value), which will
be credited with the cost value of all
goods sold during the year,
INSTALMENT SALES CONTRACTS
(year date), which will be charged only
with the amount of instalment sales con-
tracts made during the year specified.
This account for each year will be cred-
ited with all cash contracts FOR THAT
YEAR ONLY, and with the unpaid in-
stalments of defaulted or canceled con-
tracts for that year.
(d) UNREALIZED GROSS P R O F I T S ON
INSTALMENT SALES CONTRACTS
(year date), which will be credited only
with the amount of unrealized gross
profits upon instalment sales contracts
made during the year specified. This
amount will be the total of the instal-
ment sales contracts for that year re-
duced by the cost or inventory value (as
carried in account (a) GOODS PUR-
CHASED), of the actual goods sold and
covered by the contracts; the balance
remaining being the amount of the un-
realized gross profits. The proforma
monthly (or annual) journal entry would
be:
Instalment sales contract
lection applies bear to the total instal-
ment sales made during that respective
year. Corresponding debits should be
made
to
UNREALIZED
GROSS
PROFITS ON INSTALMENT SALES
CONTRACTS for the year affected by
such collections. If adjustments to any
or all of these various accounts become
necessary in order that it or they may
accurately reflect the facts, such adjust-
ments may be made either monthly or as
at the end of the taxable year.
It is believed that sufficient has been said
above to indicate the use that is to be made of
these special accounts, and it is not necessary to
discuss any of the other accounts which would
normally be maintained.
It will be noted that the foregoing plan which
will be permitted upon an explicit statement of
facts made to the Commissioner of Internal Rev-
enue by a taxpayer engaged in merchandising
upon the instalment plan is not a change from
an accrual basis to a cash received and paid
basis. In the opinion of this office the income
of a merchandising concern cannot be correctly
reflected upon the latter basis as the use of in-
ventories is absolutely essential. The plan herein
outlined is, therefore, merely such a modification
or adaptation of the ordinary accrual method of
accounting as in the opinion of this office will
enable the accounts of the taxpayer clearly to
reflect his net income. Where in the past an-
other method has been used that has failed to
reflect the taxpayer's net income an amended
return or returns for such year may be made.
In cases where the taxpayer has in the past
exercised the option of reporting the profit as
realized as at the date of sale and now wishes
to change to a basis of reporting the profit as
realized as at the date of collection of the out-
standing instalments, either of which method is
allowable under Article 42 of Regulations 45,
amended returns for years prior to the
date that the above outlined system of account-
ing is adopted and made effective by the tax-
payer, will not be required or allowed unless in
the option of the Commissioner such former
method has failed to reflect the net income.
MUSIC FOR THE FILM THEATRES
At Least One Trade Paper Shows a Proper
Appreciation of 1 the Importance of Music in
Making a Film Interesting to the Public
That good music has developed into a most
important factor in the successful conduct of
motion picture theatres is now recognized by
theatre proprietors themselves, as is evidenced
by the excellent -orchestras in the theatres and
the elaborate organs and other musical instru-
ments installed therein, and by those who
through trade papers and other channels seek
to guide motion picture theatre men along the
proper road.
Dr.
Cr.
The Motion Picture News, for instance, is
(year date)
$
$
now conducting an elaborate department on
To goods sold
music under the auspices of Charles D. Isaac-
(cost value)
.
$
son, editor of the "Music in the Home" page
Unrealized gross profits on
of the New York Globe, and an important
instalment sales contracts
personage in the New York music field.
(year date)
$
The section is made up of articles telling of
(e) , REALIZED P R O F I T S ON INSTAL- the best sort of music for theatres, and the
MENT SALES CONTRACTS, which sort most suitable for various occasions. A
will be credited from month to month (or particularly valuable feature is a series of cue
• at the end of the year), with the profits sheets, designed for various successful films
realized by cash collections upon all in- now being shown. The cue sheets are arranged
stalment sales contracts of any year. in great detail and carefully timed so that by
Such profits should be computed by tak- following them the theatre pianist, organist, or
ing the same percentage of the cash col- orchestra, can provide specially selected music
lections made during the taxable year on for each different episode.
account of instalment sales contracts of
The idea is an excellent one, and if the idea
either that or prior years, as the total is fully adopted by the theatre men should serve
unrealized profits on instalment sales con- to improve the quality of music being served
tracts for the year against which the col- with the pictures.
Victrola XVII, $350
Victrola XVII, electric, $415
Mahogany or oak
Other styles $25 to $1500
Victor
Supremacy
is a real asset for every
music retailer.
Just how much of an
asset depends upon the
retailer himself—with
no limit of the measure
of his success.
" V i c t r o l a " i, the Registered Trade mark of
the Victor Talking Machine Company designating
the products of this Company only.
W a r n i n g : The UK of the word V i c t r o U
upon or in the promotion or sale of any other
Talking Machine or Phonograph product* is mis-
leading and illegal.
Important Notice. Victor Records and
Victor Machines are scientifically co-ordinated
and synchronized in the processes of manufacture,
and should be used together to secure a perfect
reproduction.
Victor Talking
Machine Co.
Camden, N. J., u. s. A.
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