Article VI: ACCOUNTING RECORDS, ACCOUNTING PERIODS AND ACCOUNTING METHODS
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Section 6.01. Accounting Records.

Taxpayers, employers, and others required to file returns under the provisions of the earned income tax Resolution and/or Ordinance shall keep such records as will permit the filing of true and accurate returns, and such records shall be preserved for a period of not less than six years.

Section 6.02. Accounting Periods.

Net profits shall be computed on the basis of either the calendar year or fiscal year, or at the option of the taxpayer, upon the basis of that portion or portions of his annual accounting period or periods corresponding with the method on which he files his Federal Income Tax return. The percentage of the total net profits of any fiscal year of a taxpayer beginning or ending within the period beginning July 1, and ending June 30, to which the tax imposed by this Resolution and/or Ordinance shall be applicable or shall be equal to the percentage of the number of days within the taxpayer's fiscal year.

Section 6.03. Accounting Methods.

A. No uniform method of accounting is prescribed. However, the method of accounting used must be consistent with the method of accounting used in the filing of Federal Income Tax returns. Each taxpayer shall adopt such forms and methods of accounting as in his judgment are best suited for his purposes. The two principal methods of accounting are: (1) the cash receipts and disbursements methods, generally called the "cash basis" method; and (2) the "accrual basis" method.

1. "Cash Basis" method. A taxpayer employing the cash basis of accounting includes in gross income all income subject to tax received during the year in cash or its equivalent. He deducts all disbursements made during the year in cash or its equivalent, provided deduction for such expenditures is authorized by law.

a. The use of the cash basis is mandatory where no book or records of account are maintained.

b. Items of income and expenditure which, as gross income and deduction, are elements in computing taxable income need not necessarily be in the form of cash. It is sufficient that such items, if otherwise properly included in the computation, can be valued in terms of money.

c. If the return is made on a "cash basis," gross profits shall include receipts from commissions, fees and interest, as well as the gross profit or loss from sales of merchandise, chattels, goods, wares, securities, notes, chooses-in-action and services.

2. "Accrual Basis" method. If income is taken into consideration when earned, even though not received in cash, and expenses are considered as soon as incurred, whether paid or not, the system of accounting is said to be on the "accrual basis." These are the basic rules:

a. The right to receive an item of income (as distinguished from actual receipt) determines its inclusion in gross income under the accrual method; and

b. A deduction cannot be accrued until an actual liability is incurred.

B. A combination of accounting methods is permitted, provided it clearly reflects income. A taxpayer engaged in more than one business may, in computing taxable income, use a different method for each trade or business.

C. Methods of accounting must clearly reflect income. No method of accounting is allowed unless it clearly reflects income. Thus, even if the taxpayer's accounts are kept and the return made on a cash basis, unusual cases may arise in which a payment made during the year is not deductible. Where necessary to properly reflect income, inventories must be used. The basis of pricing used for the purpose of the Federal Income Tax must be used in each instance.

COMMENT: Generally speaking, under the cash basis method, income is taken into account when actually received, and expenses are deducted when amounts are actually paid out. Under the accrual method, income is taken into account when it is earned and expenses deducted as soon as incurred.

Section 6.04. Fractional Parts of a Cent.

In deducting and withholding the tax at source and in the payment of any tax of a cent shall be disregarded unless it amounts to one-half cent or more, in which case it shall be increased to one cent.