2025-ABM2-6-taxation

RAGS Trading Bank Reconciliation Statement

As of May 31, 2024

ADJUSTED BALANCE METHOD

  • Unadjusted Book Balance, Jan. 31, 2022: 138,796.00

  • Reconciling Items:

    • DAIF-from Cust A: (1,334.00)

    • DM-Bank Charges: (282.00)

    • Book Error: payment for rent-understated: (720.00)

    • Book Error: payment for utilities-overstated: 1,620.00

  • Adjusted Book Balance, Jan. 31, 2022: 138,080.00

  • Unadjusted Bank Balance, Jan. 31, 2022: 134,800.00

  • Reconciling Items:

    • Deposit in transit, Jan. 2022: 7,000.00

    • Outstanding checks, Jan. 2022: (3,720.00)

  • Adjusted Bank Balance, Jan. 31, 2022: 138,080.00

RAGS Trading Bank Reconciliation Statement

BOOK TO BANK BALANCE METHOD

  • Book Balance, Jan. 31, 2022: 138,796.00

  • Reconciling Items:

    • DAIF-from Cust A: (1,334.00)

    • DM-Bank Charges: (282.00)

    • Book Error: payment for rent-understated: (720.00)

    • Book Error: payment for utilities-overstated: 1,620.00

    • Deposit in transit, Jan. 2022: 7,000.00

    • Outstanding checks, Jan. 2022: (3,720.00)

  • Bank Balance, Jan. 31, 2022: 134,800.00

RAGS Trading Bank Reconciliation Statement

BANK TO BOOK BALANCE METHOD

  • Unadjusted Bank Balance, Jan. 31, 2022: 134,800.00

  • Reconciling Items:

    • Deposit in transit, Jan. 2022: 7,000.00

    • Outstanding checks, Jan. 2022: (3,720.00)

    • DAIF-from Cust A: 1,334.00

    • DM-Bank Charges: 282.00

    • Book Error: payment for rent-understated: 720.00

    • Book Error: payment for utilities-overstated: (1,620.00)

  • Book Balance, Jan. 31, 2022: 138,796.00

Adjusting Entries

AE #1

  • Rental Cash in Bank: 720.00

    • Entry to recognize interest earned for Jan. 2022.

AE #2

  • Utilities: 1,620.00

    • To correct entry made for collection from Mr. X.

AE #3

  • Bank Charges: 282.00

  • Accounts Receivable-Customer A: 1,334.00

    • Entry to recognize bank charges related to check stubs.

Balance as of Jan. 31, 2022

  • Unadjusted Balance: 138,796.00

  • Adjusted Entries:

    • AE #1: 720.00

    • AE #2: 1,620.00

    • AE #3: 1,616.00

  • Total Adjusted Balance: 140,416.00

  • Total Adjusted Book Balance: 138,080.00

Income & Business Taxation

Types of Taxes

  • SALE TAX

  • INCOME TAX

  • TAXES

  • CUSTOM DUTY

  • PAYROLL TAX

  • CAPITAL GAIN TAX

  • VAT

Learning Objectives

  • Understand definitions, principles, and purposes of income and business taxation.

  • Distinguish between individual and business taxation.

  • List sources of gross income and deductions.

  • Explain taxable income computation procedures.

  • Compute tax due and prepare BIR forms for individual income tax.

Definitions

  • TAX: An imposition by government on persons, property, or rights.

  • TAXATION: The state's power to raise revenue for government expenses.

Rationale of Taxation

  • Government → Public Services

  • Taxes → People and Businesses

Guiding Principles of Taxation

  1. Fiscal Adequacy: Revenue sufficient for government expenditures.

  2. Equality or Theoretical Justice: Tax proportional to taxpayer's ability to pay.

  3. Administrative Feasibility: Laws must allow for convenient and effective administration.

Essential Characteristics of Taxes

  • Enforced contribution, generally payable in money.

  • Proportional and levied on persons or properties.

  • Levied by the state with jurisdiction, for public purposes, at regular intervals.

Purposes of Taxation

Primary Purposes

  • Fiscal Purpose (Revenue): Meet basic needs of citizens, provide infrastructure.

Secondary Purposes

  • Regulatory Purpose: Control for achieving specific goals.

  • Compensatory Purpose: To attain social and economic objectives.

General Process of Taxation - Business Entity

  • Business registration with SEC.

  • Secure TIN from BIR.

  • Fill BIR Form 1903 with required documentation.

  • Obtain Authority to Print from BIR.

  • Register Book of Accounts with BIR.

General Process of Taxation - Employee

  • Obtain TIN from BIR.

  • Complete BIR Form 1902 with personal documentation.

Types of Taxes

Local Taxes

  • Imposed under Local Government Code of 1991 (RA# 7160).

  • Examples: license/permit fees, real estate taxes.

National Internal Revenue Taxes

  • Governed by National Internal Revenue Code of 1997 (RA# 8424).

  • Examples: income tax, VAT, percentage taxes.

Other National Internal Revenue Taxes

  • Estate Tax: On net value of deceased person’s estate.

  • Donor’s Tax: On donations or gifts.

  • Excise Tax: On production or sale of commodities.

  • Documentary Stamp Tax: On certain transactions.

Tariff & Customs Duties

  • Imposed on imported goods/services under customs code.

Income and Business Taxation

  • Income Taxation: Levied on taxpayer income based on residence or citizenship.

  • Business Taxation: Taxation based on the business location.

  • Levy: The imposition of taxes.

Inclusiveness in Gross Income

  • Business Income: From regular business conduct.

  • Compensation Income: From employment, including fringe benefits.

  • Capital Gains: From sale of property.

  • Types include rental, services, royalties, and other earnings.

Taxpayer Types

Individuals

Corporations

Individual Taxpayers

  • Residents: Filipinos living in the Philippines.

  • Non-residents: Filipinos abroad intentionally during the taxable year.

  • Aliens: Resident/non-resident based on various conditions.

Corporate Taxpayers

  • Domestic Corporation: Organized per Philippine laws.

  • Foreign Corporation: Organized under foreign laws with distinctions for resident and non-resident.

Basis of Tax and Tax Rates for Resident Citizens and Domestic Corporations (2023)

  • Rate: 25% on all income.

  • Minimum Corporate Income Tax (MCIT): 2% of gross income, with a lower rate for net income below 5M.

Situs of Income

  • Determines taxability of income in the Philippines.

Rules on Situs of Income

  1. Interest Income: Based on debtor’s residence.

  2. Royalties: Where intangible is employed.

  3. Rent Income: Based on property location.

  4. Service Income: Based on service rendered location.

Corporate Tax Rates

  • Tax Rate: 25% for domestic and resident foreign corporations on net taxable income.

  • Exemptions: Includes dividends from domestic corporations and certain interests.

Optional Standard Deduction (OSD)

  • Individuals (excluding non-resident aliens) can choose OSD not exceeding 40% of gross income.

  • Election is irrevocable for the taxable year.

Expanded Value Added Tax (E-VAT)

  • Tax on consumption for sale, barter, exchanges or leases in the Philippines including imports.

  • Defines input/output taxes and options for excess input/output tax.

Periodic Tax Filing

  • Quarterly and annual filings for income tax, VAT, withholding taxes, and others.

Case Studies

I. Individual Taxpayer Status of Ashley Cristales

  1. Resident: Filipino residing in Bacolod City.

  2. Non-resident: Singaporean working in the Philippines for one month.

  3. Taxpayer status differences in 2019 and 2020 based on travel.

  4. Korean singer's temporary stay for concert.

  5. American Finance Manager’s tax obligations.

  6. **Malaysian resident’s status based on duration of stay.

II. Corporate Taxpayer Status of Ashley Fashion

  1. Domestic corporation: Organized in the Philippines in 2016.

  2. Foreign corporation: Hongkong entity with branch in Cebu.

  3. French corporation renting to a domestic entity.

III. Income Tax Computation

  1. Domestic corporation: Ashley Fashion with mixed income sources from Indonesia.

  2. Indonesian corporation with income in the Philippines.

Spiritual Nuggets

  • Psa 9:9: "The LORD also will be a stronghold for the oppressed, a stronghold in times of trouble!"