Appeal of COLLEGE POINT BOAT Docket No. 764. CORPORATION.

A corporation which Increases Its book inventory to agree with a physical inventory, offsetting such increase by a "Re serve for invoices not received," has not thereby received addi tional income under such circumstances as are herein stated.

Submitted January 22,1925; decided January 31,1925.
O. Hammock, Esq., for the taxpayer.
R. A. Littleton, Esq. (Nelson T. Hartson, Solicitor of Internal Kevenue) for the Commissioner.

Before Grattpner, Littleton, and Smith.

FINDINGS OF FACT.
1. The taxpayer is a New York corporation with its principal officeinNewYork,N.Y. Thetaxesincontroversyareincomeand profits taxes for the calendar year f918 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 supplierjand the correspoading counter-entry made simultane ously charging stores with the value of the merchandise. Thus, "Accounts Payable " was credited for merchandise receipts and be came the bookkeeping point of entry of material later found in inventories.
3. The taxpayer maintained a book inventory whereby stores account was 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 in ventory 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 madebythetaxpayerinitsbookinventoryandhastherebyincreased 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.