FABM2 Reviewer: Financial Statements, Bank Transactions, and Taxation

Comprehensive practice flashcards covering Statement of Financial Position, Statement of Comprehensive Income, Financial Statement Ratio Analysis, Banking Documents, Bank Reconciliation, and Business Taxation.

Balance Sheet

A summary of all assets, liabilities, and owner's equity at a specific point in time.

Mortgage Payable

A liability that is secured by property.

Owner's Equity

The residual claim on the assets of the business.

Liquidity

The ease of converting an asset into cash.

Income Statement

A financial statement showing the operations, performances, and activities of the company, containing its revenues and expenses.

Cost of Sales

The amount paid or payable by the business for merchandise sold, calculated as $\text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory}$.

Net Purchases

The total amount paid or payable to suppliers, calculated as $\text{Purchases} - \text{Purchase Returns \& Allowances} - \text{Purchase Discounts} + \text{Freight-in}$.

Freight-In

An expense incurred to transport merchandise to the buyer's place, accounted for as an addition to purchases.

Freight-Out

The delivery cost of goods sold, classified as a selling expense.

Selling Expenses

Expenses related to the sale and delivery of merchandise and activities generating sales revenues, such as sales commissions, delivery expenses, and advertising expenses.

General and Administrative Expenses

Expenses necessary for the business to operate effectively, such as utilities for a home office and salaries of administrative personnel.

Single-Step Approach

A Statement of Comprehensive Income (SCI) preparation method used for service businesses where all revenues are listed in one section and all expenses in another.

Multi-Step Approach

A Statement of Comprehensive Income (SCI) preparation method used for merchandising businesses involving several steps to arrive at net income.

Working Capital

A liquidity measurement calculated as $\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$.

Current Ratio

A liquidity ratio calculated as $\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$.

Acid Test Ratio

Also known as Quick Ratio, calculated as $\text{Acid Test Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}$, where quick assets exclude inventory and prepaid expenses.

Trend Analysis

A horizontal analysis method comparing financial statements over two given periods, computed as $\text{Balance of Current Year} - \text{Balance of Prior Year}$.

Common-Size Analysis

A vertical analysis method where total assets serve as the base ($100\%$) for the Statement of Financial Position (SFP) and net sales serve as the base for the Statement of Comprehensive Income (SCI).

Drawee

The legal and banking terminology for the party ordered by the depositor to pay a certain sum of money to the person presenting a check; the bank on which the check is drawn.

Payee

The party to whom payment is to be made on a check.

Drawer

The person who signed the check ordering payment by the bank.

Time Deposit Account

A bank account where the depositor agrees not to withdraw funds over a contracted period in exchange for a fixed interest rate higher than normal deposit rates, evidenced by a Certificate of Time Deposits (CTD).

Parts of a Bank Check

An annotated diagram showing key check elements including Account Number, Account Name, Name of Payee, Check Number, Check Date, Numerical Amount, Amount in Words, Signature of Payor, and Bank Name and Logo.

Traveler's Check

A check designed for a traveler that acts as a prepaid check and can be used like cash.

Manager's Check

A check issued by the bank on behalf of a client who does not have a checking account, guaranteed by the bank that sufficient funds exist.

Bounced Check

A non-sufficient funds (NSF) check that cannot be processed because there is not enough money in the account to clear it.

Stale Check

An uncashed check that is more than six months old.

Crossed Check

A check containing parallel lines in which the payee's name is specified and cannot be presented for direct payment over the counter.

Bank Reconciliation Statement

A statement prepared by an entity to reconcile the cash-in-bank account balance in its books versus the balance reported by the bank in the statement.

Outstanding Checks

Checks written and recorded in the cash account of the company that have not yet cleared or been presented to the bank by the payee.

Deposits in Transit

Collections made and recorded by the company during the day that have not yet been deposited or recorded on the bank statement.

Credit Memorandum

Collections or loan proceeds made by the bank that are credited (added) directly to the company's bank account.

Debit Memorandum

Charges made by the bank directly deducting from the depositor's checking account, such as bank service charges.

National Internal Revenue Code (NIRC)

The basic source of Philippine tax law governing revenue collection and tax implementation.

Bureau of Internal Revenue (BIR)

The Philippine government bureau that implements the tax law, performs assessments, and collects national revenue taxes.

Resident Citizen

A Filipino citizen who lives in the Philippines and receives income from sources both inside and outside the Philippines.

Resident Alien

A foreigner living in the Philippines who earns or receives income from sources within the Philippines.

Optional Standard Deduction (OSD) Scheme

An income tax computation approach where an entrepreneur can claim tax deductions up to a maximum of $40\%$ of gross receipts.

Income Tax Tables under TRAIN Law (Part 2 - Applicable from Year 2023 Onwards)

Tax rate table outlining individual tax brackets starting from $0\%$ for annual income $\text{P}250{,}000$ and below up to $\text{P}2.2025\text{ million} + 35\%$ of excess over $\text{P}8\text{ million}$.