Drawbacks;

              10 HASKINS & SELLS February
Drawbacks
T H E developing interest in foreign trade
and the export field brings to mind a
point of contact between accounting and
exporting in the matter of "drawbacks."
Many articles manufactured in the
United States contain elements which have
been imported. Such of the manufactured
product as is sold within the United States
differs in no respect from any article com­posed
entirely of domestic material. On
such of it as is exported, the manufacturer
having taken the proper steps, may benefit
under the provisions of the tariff law
through what is known as a "drawback."
The manufacturer must pay the duty as
the foreign articles to be used in the manu­facture
come into the country. He may
upon application to the Secretary of the
Treasury receive regulations governing
the procedure in handling and accounting
for the article and establishing the rate of
drawback. These are determined after in­vestigation
by a special agent of the Treas­ury
Department and are transmitted to the
Collector of Customs at the port from
which the exportations are to be made.
The manufacturer, shipper, exporter, or
the agents thereof, must file in the office of
the Collector of Customs a Notice of In­tent
to Export. The manufacturer must
subsequently make a claim, filing a certifi­cate
of manufacture, a copy of the export
bill of lading, and a landing certificate of
the foreign consignee.
The Collector, after the manufacturer
has complied with all the formalities, liqui­dates
the entry and pays to the claimant
ninety-nine per cent of the duty paid on the
imported materials.
The accountant must needs be on the
lookout for these matters because of their
effect upon the accounting. If all the ma­terials
imported were later to be exported
as a part of manufactured goods, the
problem would not be difficult. Instead of
charging the duty into the cost of manu­facture,
as would be the case if none of the
goods were to be exported, ninety-nine per
cent of the duty would be set up as an
asset under some such title as "Duty De­posits
on Export Materials."
It rarely happens that all of such articles
as contain imported elements are exported.
In most cases some of the product is sold
in this country. It therefore becomes a
question of determining with regard to
each article what proportion of the quantity
is exported. This information is then used
as a basis for apportioning the duty on im­ported
material. That portion of the duty
which relates to the material to be exported
is set up as an asset and withheld from
cost while the other portion passes on like
any other duty into the cost.
Subsequent adjustments of the "Duty
Deposit on Export Material" account will
probably be necessary as the actual amount
of drawbacks is determined. This adjust­ment
should, strictly speaking, be made the
profit and loss account rather than the cost
of materials. As a practical matter the
adjustment is likely to be so small by com­parison
that no great damage will be done
if the adjustment is made through the regu­lar
duty account.
Some concerns pay no attention to the
duty on export materials until such time as
the drawback is recovered. The amount
is then credited to profit and loss. This
method is objectionable where amounts
large in proportion to the material cost are
concerned because of the fact that the true
costs are thus obscured.