Accounting

Periods,

Methods, and

Compliance

Requirements
UNIT VI

Prepared by
December 2022 PASTORFIDE, SALCEDO, SANTOS, SILFAVAN
Contents
Highlights to looking at today's discussion

Accounting Period

Accounting Method

Compliance Requirements
 *Page 102 of the Income Taxation Book

Accounting Period
Accounting period is the length of time over which income is measured and

reported

TYPES OF ACCOUNTING PERIOD

1. Regular Accounting period - 12 months in length
a. Calendar
b. Fiscal
2. Short Accounting Period - less than 12 months
 *Page 103 of the Income Taxation Book

Calendar Year
The calendar year accounting period starts from January 1 and ends December 31.

This period is available to both corporate taxpayers and individual taxpayers.

Under the NIRC, the calendar year shall be used when

the:

1. Taxpayer’s annual accounting period is other than

fiscal year
2. Taxpayer has no annual accounting period
3. Taxpayer does not keep books
4. Taxpayer is an individual
 *Page 103 of the Income Taxation Book

Fiscal Year

A fiscal accounting period is any 12

month period that ends on any day

other than December 31. The fiscal

accounting period is available only to

corporate taxpayers and is not

allowed to individual income

taxpayers.

 *Page 103 of the Income Taxation Book

Deadline of Filing the

Income Tax Return

Under the NIRC, the return is due for filing on the fifteenth day of the fourth

month following the close of the taxable year of the taxpayer. The regular tax

due is payable upon filing of the income tax return.

Illustration: Due date of the annual income return

1. Taxpayers under the calendar year must file their annual

income tax return for the current period not later than April 15

of the following year.

2. A corporate taxpayer with a fiscal year ending June 30, 2021

must file its annual income tax return not later than October

15,2021.
 *Page 103 of the Income Taxation Book

Instances of Short

Accounting Period
1. NEWLY COMMENCED BUSINESS
This accounting period covers the date of the start of business until the

designated year-end business.

ILLUSTRATION:
Palawan Inc. started business operations on June 30, 2021 and opted to use

the calendar year accounting period.

Palawan should file its first income tax return covering June 30 to December

31,2021 for the year 2021. The return must be filed on or before April 15,2022.
 *Page 103 of the Income Taxation Book

Instances of Short

Accounting Period
2. DISSOLUTION OF BUSINESS
The accounting period covers the start of the current year to the date of

dissolution of the business.

ILLUSTRATION:
Tawi-tawi Inc. is on the fiscal year accounting period ending every March 31. It

ceased business operation on August 15, 2021.

Start of current year: april 1, 2021

Date of dissolution of the business: august 15, 2021

Tawi-tawi should file its last income tax return covering April 1 to August 15, 2021.
 *Page 104 of the Income Taxation Book

ILLUSTRATION:
Tawi-tawi Inc. is on the fiscal year accounting period ending every March 31. It ceased

business operation on August 15, 2021.

Start of current year: april 1, 2021

Date of dissolution of the business: august 15, 2021
Filing: on or before September 15, 2021

Tawi-tawi should file its last income tax return covering April 1 to August 15, 2021.
Under the old NIRC, dissolving corporations shall file their return within 30 days from the

cessation of activities or 30 days from the approval of merger by the Securities and Exchange

Commission in the case of merger.

For the individuals, the return shall be due on or before April 15, 2022. There is no requirement

for early filing under the NIRC.

 *Page 104 of the Income Taxation Book

Instances of Short

Accounting Period

3. CHANGE OF ACCOUNTING PERIOD BY CORPORATE TAXPAYERS

The accounting period covers the date of the start of the

previous accounting period up to the designated year-

end of the new accounting period. Note that BIR

approval is required in changing an accounting period. It

is not automatic.
 3. CHANGE OF ACCOUNTING PERIOD BY CORPORATE TAXPAYERS

ILLUSTRATION 1: change from calendar accounting period to fiscal

accounting period

Effective February, 2021, Sulu Corporation changed its calendar accounting

period to a fiscal year ending every June 30.

Start of the previous accounting period: January 1, 2021

Designated year-end of the new accounting period: June 30,2021.
Filing: On or before October 15, 2021

Sulu Corporation shall file an adjustment return covering the income from

January 1 to June 30,2021 on or before October 15,2021.

*Page 104 of the Income Taxation Book

 3. CHANGE OF ACCOUNTING PERIOD BY CORPORATE TAXPAYERS

ILLUSTRATION 2: change from fiscal accounting period to calendar

accounting period

Effective August, 2021, Zamboanga Company changed its fiscal year

accounting period ending every June 30 to the calendar year.

Start of the previous accounting period: July 1, 2021

Designated year-end of the new accounting period: December 31, 2021
Filing: On or before April 15, 2022

Zamboanga Company should file an adjustment return covering July 1 to

December 31,2021 on or before April 15,2022.

*Page 104 of the Income Taxation Book

 *Page 104 of the Income Taxation Book

Instances of Short

Accounting Period
4. DEATH OF THE TAXPAYER
The accounting perod covers the start of the calendar year until the death of the

taxpayer.
ILLUSTRATION:
Mr. Regonald died on November 2, 2021.

Start of calendar year: January 1, 2021

Date of death of the taxpayer: November 2, 2021
Filing of income tax return: Apr 15, 2022

The heirs of Mr. Regonald or his estate administrators or executors shall file his last

income tax return covering his income from January 1 to November 2, 2021. There is no

requirement for early filing in case of death of taxpayers. Hence, the income tax return

shall be filed on or before the usual deadline, April 15,2021.

 *Page 105 of the Income Taxation Book

Instances of Short

Accounting Period
5. TERMINATION OF THE ACCOUNTING PERIOD OF THE TAXPAYER BY

THE COMMISSIONER OF INTERNAL REVENUE

The accounting period covers the start of the current year until the date of

the termination of the accounting period.

ILLUSTRATION:
The accounting period of a taxpayer under the calendar year basis was

terminated by the CIR on August 2, 2021.

Start of the current year: January 1, 2021
Date of termination: August 2, 2021
The taxpayer must file an income tax return covering January 1 to August 2,

2021. The income tax return and tax shall be due and payable immediately.
 *Page 105 of the Income Taxation Book

Accounting Methods
Accounting Methods are accounting techniques used to measure income.

1.
a.
b.
2.
 General Methods
For income from Sale of Goods or Service

Accrual Basis Cash Basis

Income is recognized when
earned regardless of when Income is recognized
received. when received

Expense is recognized when Expense is recognized

incurred regardless of when when paid
paid.
 Tax and Accounting Concept of
Accrual Basis and Cash Basis
Distinguished
The financial accounting concept of accrual basis and cash basis are similar to their tax
counterparts, except only for the following tax rules

1. Advanced income is taxable upon receipt.

Pursuant to the lifeblood doctrine and the Ability to Pay theory.
The subsequent taxation of advanced income in the period
earned will expose the government to risk of non-collection
Applicable on the sale of services not on goods.
 Tax and Accounting Concept of
Accrual Basis and Cash Basis
Distinguished
2. Prepaid expense is non-deductable.
Not deductible against gross income but instead, deducted
against income in the future period they expire or are used in
the business, trade or prfession of the taxpayer
3. Special Tax accounting requirement must be
followed.
Tax law provide itself for a specific accounting treatment of an income or expense
that must be observed even if it departs from the basis regurarly employed by the
taxpayer in keeping his books.
 Accrual Basis Income
The tax accrual basis income is determined as follows:

Cash income $XXX,XXX

Accrued (uncollected) income XXX,XXX
Advance income XXX,XXX
Gross Income $XXX,XXX
 Accrual Basis Expense
The tax accrual basis expense is determined as follows:

Cash expenses $XXX,XXX

Accrued expenses XXX,XXX
Amortization of prepayments
and depreciation of capital
expenditures XXX,XXX
Deductions $XXX,XXX
 Cash Basis Income
The tax accrual basis income is determined as follows:

Cash income $XXX,XXX

Advance income XXX,XXX

Gross Income $XXX,XXX

 Cash Basis Expense
The tax accrual basis expense is determined as follows:

Cash expenses $XXX,XXX

Amortization of prepayments
and depreciation of capital
expenditures XXX,XXX

Deductions $XXX,XXX
ILLUSTRATION
 ILLUSTRATION

Total Gross Income

ILLUSTRATION
 ILLUSTRATION

Total Deductions & Net Income

Points to consider in
converting GAAP Accrual
Basis to Tax Accrual Basis
Income is recognized when earned even
if not yet received. Advance income is
inherintly not included in the net income.
yet, it's still taxable and must be added
to accrual basis gross income.

Expense is recognized when accrued

even if not yet paid. Prepaid expenses are
inherently not deducted. Hence, no
adjustment for prepayments is
necessary under accrual basis
ILLUSTRATION
Points to consider in converting GAAP Accrual Basis to Tax Cash Basis
Income is recognized when received not Expense is deducted when paid
when it is earned. Advance income is including prepaid expenses. Hence, the
inherently recognized as income.
deducted prepaid expenses must be
Hence, no adjustment is necessary on
reversed for purposes of taxation
income
 Sellers of Goods
The gross income of taxpayers selling goods is determined as
follows:

Sales XXX,XXX
Less: Cost of goods sold XXX,XXX
Gross income XXX,XXX
 Sellers of Goods
The cost of sales is computed using the inventory method:

Beginning Inventory XXX,XXX

Add: Purchases XXX,XXX
Total goods available for sale XXX,XXX
Less: Ending Inventory XXX,XXX
Cost of Goods Sold XXX,XXX
Hybrid Basis
Any combination of accrual basis, cash basis , and/or
other methods of accounting.
It is used when the taxpayer has several businesses which
employ different accounting methods

Example: The gross income has determined by

Mr. Roxas has two cash basis in the service business and
proprietorship businesses: the gross income as determined by
A service business which the accrual basis in the trading
business are simply combined. There
uses cash basis and a is no requirement to measure the
trading business which income of different businesses under
uses accrual basis. a single accounting method
Sale of goods with extended
payment terms
The sale of goods with extended payment terms may be
reported using the accrual basis, installment method or
deferred payment method.

Installment Method
Under the installment method, gross income is
recognized and reported in proportion to the
collection from the installment sales.
Installment Method

Under the installment method,

gross income is recognized and
reported in proportion to the
collection from the installment
sales.
Installment Method is available to
the following taxpayers:

Dealers of personal property on the sale of properties

they regularly sell.

Dealers of real properties, only if the inititial payment

does not exceed 25% of the selling price.

Casual sale of Non-dealers in property, real or personal,

when their selling price exceeds 1,000 and their initial
payment does not exeed 25% of the selling price
 Initial Payment Selling Price Contract Price

Initial Payment
Initial Payment means total payments by the
buyer, in cash or property, in the taxable year the
sale was made.

The term "initial payment" is broader than

downpayemnt. It also includes the installment
payments in the year of the sale.
 Initial Payment Selling Price Contract Price

Selling Price
Selling price means the entire amount for which
the buyer is obligated to the seller. It is computed
as follows:
Cash received and/or receivable XXX,XXX
Fair market balue of property received
or receivable XXX,XXX
Mortgage or any indebtness assumed
by the buyer XXX,XXX

Selling Price XXX,XXX

 Initial Payment Selling Price Contract Price

Contract Price
The contract price is the amount
receivable in cash or other property from
the buyer. It is usually the selling price in the
absence of an agreement whereby the
debtor assumes indebtedness on the
property.
ILLUSTRATION
 Initial Payment Selling Price Contract Price

Selling Price
Cash received and/or receivable XXX,XXX
Fair market balue of property received
or receivable XXX,XXX
Mortgage or any indebtness assumed
by the buyer XXX,XXX

Selling Price XXX,XXX

ILLUSTRATION
Accrual Basis Installment Basis

Malaybay cannot readily use the installment method

The entire 800,000 gross profit because it is a dealer of cars rather than dealer of
shall be reported as gross machineries. The sale of properties of which the seller
income in 2021, the year of sale is not a dealer is referred to as "casual sale". Hence,
the ratio of initial payment shall be tested first.
Installment Method is available to
the following taxpayers:

Dealers of personal property on the sale of properties

they regularly sell.

Dealers of real properties, only if the inititial payment

does not exceed 25% of the selling price.

Casual sale of Non-dealers in property, real or personal,

when their selling price exceeds 1,000 and their initial
payment does not exeed 25% of the selling price
ILLUSTRATION
Initial Price

Malaybay can use the installment method. The contract

price of the amount due shall be determined next. Since
there is no mortgage assumed by the buyer, the selling
price is the contract price.
Contract Price

The gross profit will be reported in gross

income throughout the installment period
by the formula:

(Collection/Contact price) x Gross Profit

ILLUSTRATION
Contract Price
The gross profit will be reported in gross income throughout
the installment period by the formula:

(Collection/Contact price) x Gross Profit

With indebtedness assumed by the buyer

The application of the installment method will slightly

vary when the buyer assumes indebtedness on the
property sold.

Cash Flow
Selling Price XXX,XXX
Less: Mortgage
Income Statementassumed by the buyer XXX,XXX
Contract Price XXX,XXX
ILLUSTRATION
Note that dealer of real properties are subject to
limitation on the use of installment method. The ratio of
initial payment shall be determined first.
Is Tagaytay Inc qualified for
installment method?
Is Tagaytay Inc qualified for
installment method?

Tagaytay is qualified to use the installment method.

Determine the Contact Price

Alternatively, the contract price can be computed directly

as follows:
Tagaytay shall recognize the following
gross income:
With indebtedness assumed exceeds
tax basis of property sold
When the indebtedness assumed by the buyer
exceeds the tax basis of the property sold, the excess
is an indirect receipt realized by the seller.

This is an indirect downpayment which must be

added as part of the contract price and the initial
payment.
The contract price shall be computed
as follows:
Selling Price PXXX,XXX
Less: Mortgage assumed by the buyer XXX,XXX
Cash collectible P XXX,XXX
Add: Excess indebtedness-constructive
receipt XXX,XXX
Contract Price P XXX,XXX
The Initial Payment shall be
computed as follows:
Downpayment P XXX,XXX
Installment in the year of sale XXX,XXX
Excess of mortgage of over tax basis XXX,XXX
Initial payment XXX,XXX
Gross determined is computed as follows
Initial payment shall be determined first
The contract price shall be computed as
follows:
NOTE:
Gross profit on the
sale is the same as the
contract price. Hence,
any collection from
the contract including
the excess mortgage
shall be recognized as
gross income upon
collection.
Accounting Methods
Deferred Payment Method
a variant of the accrual basis and is used in
reporting income when a non-interest bearing
note is received as consideration in a sale.
gross income is computed based on the
present value of a note receivable from the
contract. The discount interest on the note is
amortized as interest income over the installment
term
 *Page 113 of the Income Taxation Book
Illustration
On December 31, 2021, a taxpayer sold an office building costing P1,400,000 for
P2,000,000. The buyer made P1,000,000 down payment and the balance, evidenced
by a note, is due in 2 annual installments of P500,000 every December 31 starting
December 31, 2022. Assume the note is non-interest bearing but can be discounted
for P900,000 at a local bank.

NOTE:
The difference between the face value The discount is amortized as interest
and the present value of the note, known income upon every collection on the
as ddiscount, will not be recognized in balance of the note as follows:
gross income at the date of sale but will P500,000 intsallment/1,00,000 total
be deferred and recognized as interest note balance x P100,000 discount
income
Accounting Methods
Percentage of Completion Method
The estimated gross income from construction is
reported based on the percentage of completion of
construction project

There are several methods of estimating project

completion in practice, but the output method
based on engineering survey is prescribed by the
NIRC.
 *Page 114 of the Income Taxation Book
Illustration
In 2021, Cagayan De Oro Construction Company accepted a
P5,000,000 fixed-price construction contract. The following shows the
details of its construction activites:
Accounting Methods
Outright and Spread-Out Method

Income from Leasehold Improvement

Leasehold improvements are intangible

improvements made by the lessee to the property
of the lessor. Improvements will benefit the lessor
when their useful life extends beyond the lease
term.
Accounting Methods
Outright and Spread-Out Method

1. Outright Method - The lessor may report as income the fair

market value of such building or improvements subject to the
lease at the time when such buildings or improvements are
completed.

2. Spread-out Method - The lessor may spread over the life of

the lease the estimated depreciated value of such building or
improvements at the termination of the lese and report as
income for each year of the lease an aliquot part thereof.
Outright and Spread-out Method

The depreciated value of the leasehold improvement is

computed as:

Cost of improvement x Exess useful life over lease term

Useful life of the improvement

Illustration

On January 1, 2021, Ivan leased a vacant lot to Greg under a

20-year lease contract. Greg immediately constructed a
building on the lot at a total cost of P4,500,00. The building has
useful life of 30 years.
Outright and Spread-out Method

Outright Method
Ivan shall recognize the entire P4,500,000 fair value of the
improvement as gross income upon completion of the
improvement in 2021.

Spread-out Method

*Page 115 of the Income Taxation Book

 Crop Year Basis

Farming Income
It is recognized as the difference between the proceeds of
harvest and expenses of the particular crop harvested. The
expenses of each crop are accumulated and deducted upn the
harvest of the crop.

Agricultural or Farming Income

a. Animal Husbandry
b. Short term crops
Crop Year Basis

The accounting for long-term crops depends on the

harvesting frequency:

a. Perennial Crops
b. One-time crops

The initial farm development costs of perennial crops like

mangoes, mangosteen, coconut and banana are capitalized
and amortized over the expected years of harvest.
Crop Year Basis
*Page 116 of the Income Taxation Book

Illustration

Norther Barn shall compute its net income using either method as follows

4, 200,000

3,000,000
 *Page 116 of the Income Taxation Book
Crop Year Basis

Illustration
John de la Cruz, a farmer, plants a certain crop that takes more than a year to
harvest. Juan, had the following data on his farming operations:
Use of Different Accounting Methods
Taxpayers with more than one type of business
using different accounting methods can
consolidate the income reported using the
different methods. There is no need to restate the
income to a common accounting method.
However, the methods applied to each business
should be applied consistently from period to
period
Change in Accounting Period
Documents required
1. A letter of request addressed to the RDO having
jurisdiction over the place of business of the taxpayer
of the following:

a. The original and the proposed new accounting

period
b. The reason for desiring to change the accounting
period

2. Certified true copy of the SEC approved amended

by-laws showing change in accounting period.
Change in Accounting Period

3. Sworn statement of "non-forum shopping"

stating that such request has not been previously
acted upon by the BIR National Office

4. Duly filed up BIR Form 1905

5. A sworn undertaking by an officer of the

taxpayer to file a separate final or adjustment
return for the period between the close of the
original accounting period.
 Tax
ReportingCash Flow

Income Statement

Profitability measurements
TYPES OF RETURNS TO THE
GOVERNMENT
Income tax returns - provides the details
of the taxpayer’s income, tax due, tax
credit and tax still due to the government.
Withholding tax returns - provide
reports of income payments subject to
withholding tax by taxpayers.
Information returns - use to notify
government agencies and taxpayers
about taxable payments.
MODE OF FILING INCOME
TAX RETURNS

Manual Filing System

e-BIR Forms

Electronic Filing and Payment System

 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

Manual Filing System - the traditional manual system of filing

income tax return by paper where taxpayers fill up BIR Forms to
report income, expenses, or any declaration required to be filed
with BIR

Under the NIRC, the income tax return shall be filed to the following,
in descending order of priority, within the revenue district office
where the taxpayer is registered or required to register.

1. An authorized agent bank (AAB)

2. Revenue collection officer
3. Duly Authorized city or municipal treasurer, if there is no BIR office
in the locality
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

For individuals earning income only as employees and for marginal income
earners, you will need to fill up three (3) copies of BIR Form 1701. You will also need
the following documents:
Certificate of Income Tax Withheld on Compensation or BIR Form 2316,
A waiver of the spouse’s right to claim an additional exemption
Duly approved Tax Debit memo and proof of foreign tax credits.

For individuals who are self-employed or deriving mixed-income, you will need to
fill up three (3) copies of BIR Form 1701. The following documents are also needed:
Certificate of Income Tax Withheld on Compensation BIR Form 2316, tax debit
memo,
Proof of prior year’s excess tax credits, and
Certificate of Income Payments not Subjected to Withholding Tax or BIR Form
2304.
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

e-BIR Forms - the BIR introduced the e-BIR forms with

an offline and online version. Taxpayers fill up their
income tax returns in electronic spreadsheets without
the need of writing on paper returns. The system
ensures completeness of data on the return and is
capable of online submission. If there are no penalties
that require BIR assessments, tax payers would have to
print a hard copy of the filled tax returns and proceed
directly to the bank for payment.
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

Electronic Filing and Payment System (eFPS) - Is a paperless tax

filing system developed and maintained by the BIR. Taxpayers file
tax returns including attachments in electronic format and pay the
tax through the internet. RR No. 1-2013 mandates the following
taxpayers to use eFPS:

Large Taxpayers duly notified by the BIR;

Top 20,000 Private Corporations duly notified by the BIR;
Top 5,000 Individual Taxpayers duly notified by the BIR;
Taxpayers who wish to enter into a contract with government offices;
Corporations with paid-up capital stock of Ten Million Pesos (P10,000,000)
Entities registered with the Philippine Economic Zone Authority (PEZA) and
those located within Special Economic Zones (SEZ); and
Government Offices, in so far as remittance of withheld VAT and business tax is
concerned.
Taxpayers included in the Taxpayer Account Management Program (TAMP)
Accredited importers, including prospective importers required to secure the
importers Clearance Certificate (ICC) and Custom brokers Clearance Certificate
(BCC)
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

Electronic Filing and Payment System (eFPS) groupings of Taxpayers

under EFPS

1 Group A

a) Banking institutions
b) Insurance and pension funding
c) Non-bank financial intermediation
d) Activities auxiliary to financial intermediation
e) Construction
i) Water Transport
g) Hotels and Restaurants
b) Land Transport
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

2 Group B
a) Manufacture and repair of furniture
b ) M a n u f a c t u r e o f b a s i c m a t e r i a ls
c) Manufacture of chemicals, and chemical products
d ) M a n u f a c t u r e o f c o k e , r e f i n e d p e t r o le u m , a n d f u e l p r o d u ct s
e) Manufacture of electrical machinery, and apparatus NEC
f) Manufacture of fabricated metal products
g) Manufacture of foods, products, and beverages
h) Manufacture of machineries, and equipment NEC
i ) M a n u f a c t u r e o f m e d i c a l , p r e c i s i o n , a n d o p t i c a l i n s t r u m e nt s
j ) M a n u f a c t u r e o f m o t o r v e h i c le s , t r a i le r s a n d s e m i - t r a i le r s
k ) M a n u f a c t u r e o f o f f i c e , a c c o u n t i n g , a n d c o m p u t i n g m a c h i ne r i e s
l ) M a n u f a c t u r e o f o t h e r n o n - m e t a lli c m i n e r a l p r o d u c t s
m )M a n u f a c t u r e o f o t h e r t r a n s p o r t e q u i p m e n t
n) Manufacture of other wearing apparel
o) Manufacture of papers, and paper products
p) Manufacture of radio, TV, and communication equipment, and apparatus
q ) M a n u f a c t u r e o f r u b b e r a n d p la s t i c p r o d u c t s
r)Manufacture of textiles
s.) Manufacture of tobacco products
t.) Manufacture of wood and wood products
u.) Manufacturing N.E.C.
v.) Metallic ore mining
w.) Non-metallic mining and quarrying
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

3 Group C

a) Retail sale
b) Wholesale trade and commission trade
c) Sale, maintenance, repair of motor vehicle, and sale of automotive
fuel
d) Computer and related services
e) Real estate activities

4 Group D
a) Air transport
b) Electricity, gas, steam, and hot water supply
c) Postal and telecommunications
d) Publishing, printing, and reproduction of recorded media
e) Recreational, cultural, and sporting activities
f) Recycling
g) Renting out goods and equipment
h) Supporting and auxiliary transport activities
 e-BIR Forms Electronic Filing and Payment
Manual Filing System System

5 Group E

a)Activities of Membership Organizations Inc.

b)Health and Social Work
c)Private Educational Services
d)Public Admin & Defense Compulsory Social Security
e)Public Educational Services
f)Research and Development
g)Agricultural, Hunting, and Forestry
h)Farming of Animals
i)Fishing
j)Other Service Activities
k)Miscellaneous Business Activities
l)Unclassified Activities
 PAYMENT OF INCOME
TAXES
General Rule - “PAY AS YOU FILE”

Manual  e-BIR Forms eFPS

Data Entry Manual Electronic Electronic

Filing/Submission Manual Electronic Electronic

Tax Payment Manual Manual Electronic

Attachments Required to be Submitted within
15 days from Filing Annual Income Tax Return
Attachments Required to be Submitted within
15 days from Filing Annual Income Tax Return

Based on the foregoing, if the Company filed the

annual ITR last April 15 (date of filing), accordingly,
the attachments shall be submitted to the BIR on April
30 (after 15 days of actual filing or from April 15,
whichever is later).
Attachments Required to be Submitted within
15 days from Filing Annual Income Tax Return

If the Company’s balances have not been finalized, the

Company may file Tentative FS, in lieu of the audited FS,
compose of the following:

Statements of Comprehensive Income with the word

“TENTATIVE”
Statements of Financial Position with the word “TENTATIVE”
Cover letter from the External Auditor that the FS is
tentative
 PENALTIES FOR LATER
FILING OR PAYMENT OF TAX
1. Surcharge
a. 25% of the basic tax for failure to file or pay deficiency tax on time
b. 50% for willful neglect to file and pay taxes
2. Interest
Double of legal interest rate for loans or forbearance of any money in the absence of any
express stipulation.

Since the legat i nterest i s currently set at 6%, the i nte r e st pe na lty i s the r e for e
12% per annum ef f ecti vely January 1, 2 01 8 .

Under the new rul es est abli s hed by rr2 1 -2 01 8 , the i nte r e st p e r i od shall be compute d
based on actual days divided 3 65 days. The additional day in February du ri ng leap
year will be counted
HOW TO IDENTIFY A LEAP YEAR?
A year divisible by 4 with a whole number quotient without a decimal is
a leap year. 2016, 2020, 2024, 2028 are leap year.

Leap years have 29 days in february hence the actual number of days
in a leap year is 366 not the usual 365.

Under the illustrative guidelines in rr21-2018, the near day counting

system for interest penalty will be implemented for tax assessments
effective January 1, 2018. This means it will be applied even if the tax
assessment pertains to 2017 and prior years.
ILLUSTRATION 1: BASIC PROCEDURE

The interest penalty shall be computed as P100,000 x 12% x 110/365 = P3, 616.44
ILLUSTRATION 2: INTEREST IN A
LEAP YEAR

The interest penalty shall be computed as P50,000 x 12% x 443/365 = 7, 282.19

ILLUSTRATION 3: INTEREST IN
TRANSITION YEARS
An individual taxpayer has a tax due of P40,000 for taxable year 2016 due on April 15,
2017. The taxpayer settled his tax on February 10, 2018.

The interest in 2017 shall be computed using the old 20% interest penalty rate
while the interest in 2018 shall be computed using the 12% interest penalty
rate.

3. Compromise Penalty - Is an amount paid in lieu of criminal prosecution over a tax

violation.
 *Page 123 of the Income Taxation Book

Integrative Illustration

An individual taxpayer filed his 2020 income tax return with a computed tax
due of P100,000 on July 15, 2021. A total of P20,000 creditable withholding
taxes was deducted by various income payors from his gross income.
 *Page 123 of the Income Taxation Book

Integrative Illustration
Note:
The deadline of the 2020 income tax return is April 15, 2021. April 15, 2021 to
July 15, 2021 is a 91-day period.

Interest is computed from the net amount of tax due before the 25% surcharge.
Imposition of interest upon the surcharge is illegal.

The compromise penalty is taken from the table of compromise penalties for
failure to file and or pay internal revenue tax at the time or times required by law,
as follows:
PENALTIES FOR NON-FILING OR LATE FILING OF
INFORMATION RETURN
For each failure to file a separate information return, statement or list, or
keep any recurd, or supply any information required by the Code or by the
Commissioner on the date prescribe therefor, unless it is shown that such
failure is due to reasonable cause not to willful neglect, shall be subject to a
penalty off P1,000 for each such failure. Provided that the amount imposed
for all such failure during calendar year shall not exceed P25,000.
 Books of Accounts

1. manual
2. loose-leaf
3. computerized books
BOOKS OF ACCOUNTS

manual

This is where a business maintains physical books, journals and

ledgers.
BOOKS OF ACCOUNTS

loose-leaf

hybrid system between manual books and computerised books.

Transactions are recorded into a computer or cloud-based
system. When it is time to register or submit the loose-leaf
books to the BIR, the company must printout the computer files,
bind them together and then submit them to the BIR in hard-
copy. If a company wants to use loose-leaf books of account, it
must first apply to the BIR for a permit enabling the company to
do so
BOOKS OF ACCOUNTS

computerized books

These books of accounts are “systems generated”. Computerized books

are generally used by bigger organizations that deal with a large volume
of transactions and have more complex accounting processes.

The company must submit the books of account to the BIR in soft copy (i.e.
CD-ROM). The BIR must first approve the company’s use of the
computerized books of accounts, including the particular computerised
system that the company is operating.
 Preservation of Books of Accounts
and Accounting Records
RR NO. `17-2013

RR no. 17-2013 shall take effect within 15 days from general publication on
seeptembet 28,2013 with the manila bulletin and philippine daily inquirer.

violations of rr no. 17-2013 on the preservation of books of accounts shall

be subject to penalties provided in sections266,275, and other pertinent
nirc provisions, and section 6 of repblic act no. 10021 (exchange of
information on tax matters act of 2009
PRESERVATION WITHIN 10 YEARS FROM LAST ENTRY

all taxpayers are required to preserve their books of

accounts, including subsidiary books and other accounting
records, for a period of 10 years reckoned from the day
following the deadline in filing a return, or if filed after the
deadline, from the date of filing of the return, for the taxable
years when the last entry was made on the books of
accounts
PRESERVATION MORE THAN 10 YEARS

in case the taxpayer has a pending protest or claim for tax

credit certificate of tax refund, and the books f accounts and
other accounting records are material to the case, then, books
of accounts and other accounting records in the philippines
must be preserve until the case is finally resolved. this would
mean that such period could go for more than 10 years.
COVERAGE OF BOOKS OF ACCOUNTS AND OTHER ACCOUNTING RECORDS

manual books of accounts,

loose-leaf books of accounts,
computerized books of accounts

"other accounting records"

corresponding invoices, receipts,
vouchers and returns,
other source documents supporting the entries in the books
of accounts. .
WHEN TO START COUNTING 10 YEAR PERIOD OF PRESERVATION

the counting of the preservation would start from the last

entry on the books of accounts referring to a particular
business transaction or an item thereof that is entered or
posted last or latest in the books of accounts when the same
was closed.

Notably, registration of new sets of manual books of accounts

is upon consumption of its pages so that if you have in your
books of accounts transactions for five years, then, such books
of accounts should be preserved for a total period of 15 years.
OBLIGATIONS OF CPA'S TO PRESERVE AFS FOR 10 YEARS

An independent certified public accountant (CPA) who audited

the books of accounts and other accounting records of the
taxpayer has the responsibility to maintain and preserve
copies of the audited and certified financial statements for a
period of 10 years from the due date of filing annual income
tax return or actual date of filing thereof, whichever comes
earlier, unless a longer retention period is required under the
National Internal Revenue code of the philippines, as amended,
or other relevant laws.
PLACE OF PRESERVATION OF BOOKS OF ACCOUNTS IN THE PHILIPPINES

all books, registered, and other records, and vouchers and other
supporting papers required by the bir shall be kept at all times
at the place of the business of the taxpayer. books of acconts
may be inspected by the bir and examined for purposes of the
following:
regular audit
extraordinary audit
requests for exchange of information by a foreign tax authority under
section 6 and 71 of the nirc
in the exercise of bir commissioner's power to obtain infrmation under
section 5 of the nirc

examination of books of accounts may be made in the office of

the bir
THANK YOU!