FABM-REVIEWER

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FABM REVIEWER

Bank Reconciliation:
Bank Reconciliation Statement
-A bank reconciliation statement is prepared by an entity to reconcile the
cash-in bank account balance in the entity’s books versus the balance as
reported by the bank in the bank statement.

Types of Bank Deposits:


•Demand deposit
Checking account where funds are withdrawal by means of check
•Savings deposit
Account where a pass book is required in making deposits and withdrawals
•Time deposit
interest-bearing savings account evidenced by a certificate of deposit
terminated or withdrawn on demand, or after a certain period of agreed
upon.

Here the items to reconcile for both bank and book records:
Bank Reconciling Items
1. Deposit in transit - deposits already recorded in the company’s books but
not
yet recorded by the bank.
2. Outstanding checks - checks issued by the company but not yet paid by
the
bank.
3. Bank errors - items erroneously recorded by the bank.

Book Reconciling Items


1. Bank debits - bank
charges that the bank
deducts against the
company’s
account and not yet
reflected in the books.
2. Bank credits - deposits
made by the bank but not
yet reflected in the books.
3. Book errors - item
erroneously recorded by
the company in its books.
Book Reconciling Items
1. Bank debits - bank charges that the bank deducts against the company’s
account and not yet reflected in the books.
2. Bank credits - deposits made by the bank but not yet reflected in the
books.
3. Book errors - item erroneously recorded by the company in its books.
BANK Reconciling Items – these are the items that need to be computed
in
order to balance it with the book. These items will be adjusted by the bank in
its records. No book entry is needed.

Example of Book Reconciling Items


1. Bank debits entry to update the book:
• Accounts Receivable P xxx
Cash in bank P xxx
To record returned check.

• Miscellaneous Expense P xxx


Cash in bank P xxx
To record bank service charges.
Ps. DEPOSITS IN TRANSIT – deposits already recorded in the company’s
books but not yet recorded by the bank.
OUTSTANDING CHECKS – checks issued by the company but not yet paid by
the bank.

Principle of taxation:
The Inherent Powers means existing as a natural or basic part of every
sovereign State, without being conferred or granted by the people or the
Constitution.
1. Power to Tax
2. Police Power
3. Eminent Domain
TAX
- is an imposition by the government upon person property or rights exercise
within its jurisdiction.

TAXATION - All earnings citizens of the Philippines, whether from


compensation or business, are required to pay taxes. Taxes are revenue of
the government that funds government expenditures and programs.
Governing tax law in the Philippines is the National Internal Revenue Code of
1997. The Bureau of Internal Revenue (BIR) is the primary implementing
agency of this law.
Taxation is the process by which the government collects revenue in order to
pay for its expenses.
Primary Purpose - To raise revenues/funds to defray the necessary expenses
of the government (also called Revenue or Fiscal Purpose).
Secondary Purpose:
a. Regulatory Purpose - Taxation is employed as a devise for regulation or
control
(to implement the police power of the State for the promotion of the
general welfare) by means of which certain effects or conditions envisioned
by the government may be achieved.

b. Compensatory Purposes
Reduction of Social Inequality
Economic Growth
Characteristic:
• a. A tax is a forced charge, imposition or contribution.
• b. It is a pecuniary burden payable in money.
• c. It is imposed for public purpose.
• d. It is imposed pursuant to a legislative authority.
• e. It is levied within the territorial and legal jurisdiction of a state.
• f. It is assessed in accordance with some reasonable rule of
apportionment.
THEORY OF TAXATION:
Necessity Theory
• The existence of government is a necessity. The government cannot
continue to perform of serving and protecting its people without means
to pay its expenses. For this reason, the state has the right to compel
all its citizens and property within its limits to contribute.
Lifeblood Doctrine
Taxes are the lifeblood of the government without which it can neither
exist nor endure.
Scope of the Taxing Power of the Legislative
The matters within the competence of the legislature include the
determination of the following:
1.The subject or object (person, property, or excises/privileges) to be
privileges to be taxed. Excises or privilege to be taxed.
2. The purpose of the tax as long as it is a public purpose.
3.The amount or rate of the tax.
4. Kind of Tax
5. Appointment of tax (i.e., whether the tax shall be general or limited to a
particular locality or partly general and partly local)
6. Situs of taxation.
7. The manner of taxation

Principles of Sound Tax System


• 1. Fiscal Adequacy - The sources of government revenue must be
sufficient to meet government expenditures and other public needs.
• 2. Administrative Feasibility - Tax laws must be capable of convenient,
just and effective administration-free from confusion and uncertainty.
• 3. Theoretical Justice - A good tax system must be based on the
taxpayer's ability to pay. This suggests that taxation must be
progressive conformably with the constitutional mandate that congress
shall evolve a progressive system of taxation.

APPLICATION OF SITUS OF TAXATION

SUBJECT MATTER SITUS


Persons Residence of the taxpayer
Real Property Location

Tangible Personal Location


Property
Intangible Personal Domicile of the owner
Property
Income Residence, citizenship, source

Business Place of business


Gratuitous Transfer of Residence or citizenship of th
Property or location of property

TAX LAW
• NATURE OF INTERNAL REVENUE LAWS- Tax laws are civil and not
penal in nature, although there are penalties provided for their
violation. The purpose of tax laws in imposing penalties provided for
delinquencies is to compel the timely payment of taxes or to punish
evasion or neglect of duty in respect thereof.
APPLICATION OF TAX LAWS
• Tax laws are a prospective in operation because the nature and
amount of the tax could not be foreseen and understood by the
taxpayer at the time the transactions which the law seeks to tax was
completed.
EXCEPTION- While it is not favored, a statute may nevertheless operate
retroactively provided it is expressly declared or is clearly the legislative
intent. But a tax law should not be given retroactive application when it
would be harsh and oppressive.
Tax avoidance – this is legal and allowed. This happens when a tax payer m
inimizes histax liabilities by taking advantage of legally available tax plannin
g opportunities. Otherwise known as tax minimization.
Tax Evasion – illegal and prohibited. Occurs when the taxpayer resorts to un
lawful means to lessen or to get away from his tax liability

INCOME TAXES
is the imposition of taxes on the income of individuals derived from
compensation, business trade, self-employed, or practice of a profession or
from property less deductions authorized by the law the term "gross
income" refers to the taxpayer's income for taxation purposes.

CLASSIFICATION OF INDIVIDUAL TAXPAYERS


1. Resident Citizen (RC)
2. Non-Resident Citizen (NRC)
3. Resident Alien (RA)
4. Non-Resident Alien (NRA) a) Engaged in trade or business (ETB) b) Not
engaged in trade or business (NETB) c) Special Alien Employee (SAE)

TAX TABLE UNDER TRAIN LAW APPLICABLE 2023 ONWARDS


13th month pay - is additional compensation mandated by law to be given
to “rank-and-file” employees (i.e., non-managers). Thirteenth month pay is
equal to an employee’s one (1) month basic salary. However, if the
employee has not worked for the entire year, this amount is prorated.
For example, an employee with basic salary of P24,000 per month but was
employed only on september 1 will have a 13th month pay of P8,000 (P24,000 x
4/12) for that year. The numerator of “4” pertains to the months of september to
December. The denominator of “12” pertains to the twelve months in a year.
NOTE: Thirteen-month pay is not taxable up to P90,000. Any excess over
this amount is taxable
HERE ARE SOME MANDATORY CONTRIBUTION:
Social Security System (SSS) for private employees and self-employed
Government Service Insurance System (GSIS) for government employees.
Philippine Health Insurance Corporation (PhilHealth)
Home Development Mutual Fund (HDMF)
PAG-IBIG

De Minimis Benefit - are other forms of benefits that are relatively small
value and are given to employees to promote health, goodwill, contentment
and work efficiency. The following are considered “De minimis benefits”
TAXATION
De minimis benefits are not taxable up to the prescribed limit stated in the
previous slides.
STEPS IN COMPUTING THE TAXATION OF DEMINIMIS BENEFIT:
1. Determine the excess of each “De minimis” benefit received by the
employee over the prescribed limit stated in the previous slide
2. Add the excess “De minimis” benefits to the 13th month pay and other
benefits received by the employee.
3. compare the amount determined in step 2 with the 90,000 limit.If the
amount is less than P90,000 it is not taxable If the amount exceeds
P90,000, the excess is taxable
Every taxpayer must register once with the BIR and obtain one (1) Tax
Identification Number (TIN). A taxpayer acquiring more than one TIN for
himself/herself is punishable by law through monetary fines or
imprisonment. Tax evasion (tax dodging) is a taxpayer who avoids paying
taxes using illegal means (e.g., non-declaration of taxable income or under-
declaration). In contrast, Tax avoidance is a taxpayer minimizing their tax
exposure by legal means (e.g., careful tax planning).

ITEMIZED DEDUCTION- when we less the operating expenses in the total


net sales
Optional standard deduction (OSD)
Instead of the itemized deductions, the taxpayer may choose to deduct the
OSD, which is calculated as forty percent (40%) of net sales, without
deducting the cost of sales.
Under the computation of the Business Income Tax Rate, there is
another option. Suppose you do not opt to use the graduated
income tax rate and the percentage tax. This option is what we call
“Optional Eightpercent (8%) Tax” or what we call preferential tax
rate.
A tax of 8% charge on gross sales or gross receipts and other non-operating
income of more than two hundred and fifty thousand pesos(P250,000)

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