ACCOUNTING METHOD AND INSTALLMENT REPORTING OF INCOME Flashcards
What are the kinds of accounting periods?
- Calendar year
- Fiscal year
- Short Accounting Period (less than 12 months)
What are the instances wherein the use of calendar year is required?
- Taxpayer’s annual accounting period is other than a fiscal year
- Taxpayer has no annual accounting period
- Taxpayer does not keep books of accounts
- Taxpayer IS AN INDIVIDUAL
What are the instances wherein a short accounting period may arise?
- A corporation is newly organized
- Corporation is dissolved
- Taxpayer dies
- Corporation changes accounting period
What are the different accounting methods?
- Cash method
- Accrual method
- Crop basis - applies to farmers who are engaged in producing crops which take more than a year to produce and harvest. The entire cost of producing the crop must be taken as a deduction in the year in which gross income is realized.
- Percentage of completion - allowed only in case of long-term contracts which cover a period of more than one year
- Installment method
T or F
When a taxpayer, other than an individual, with the approval of the CIR, changes the basis of computing net income from fiscal year to calendar year, a separate final or adjustment return shall be made for the period between the close of the last fiscal year for which return was made and the following Dec 31.
True.
T or F
When a taxpayer, other than an individual, with the approval of the CIR, changes the basis of computing net income from calendar year to fiscal year, a separate final or adjustment return shall be made for the period between the close of the last calendar year for which the return was made and the date designated as the close of the fiscal year.
True.
What is the penalty for non-issuance of receipts or invoices?
- Fine of not less than 1,000 but not more than 5,000 AND/OR
- Imprisonment for not less than 2 years but not more than 4 years.
How long must books of accounts be kept?
For a period beginning from the last entry in each book until the last day prescribed within which the CIR is authorized to make an assessment.
T or F
Books of account and other records shall be subject to examination and inspection at any time by BIR officers.
False, Books of account and other records shall be subject to examination and inspection ONCE EVERY TAXABLE YEAR by BIR officers. The examination and inspection shall be done in the taxpayer’s office or place of business or office of the BIR.
What are the instances wherein the examination and inspection of books of account and records may be made more than once in a taxable year?
- Fraud/irregularity/mistakes as determined by the CIR
- Taxpayer’s request for reinvestigation
- Verification of compliance with laws and regulations
- Verification of capital gains tax liabilities
Explain the installment method of reporting income.
The installment method may be used for the following sales:
1. SALES OF DEALERS IN PERSONAL PROPERTIES - includes sales by persons who regularly sell/dispose of personal property on installment (car dealerships)
- CASUAL SALES OF PERSONAL PROPERTY - Casual sales or other casual disposition of personal property provided that:
a. The selling price exceeds 1,000
b. Initial payments do not exceed 25% of the SP - SALES OF REAL PROPERTY - sales of real property on the installment plan, provided that initial payments for the year do not exceed 25% of the selling price.
- SALES OF REAL PROPERTY CONSIDERED AS CAPITAL ASSETS BY INDIVIDUALS - An individual taxpayer who sells real property considered as capital assets and initial payments do not exceed 25% of the selling price may pay the CGT in installments.
How is selling price determined for installment method?
Selling Price = Cash received + FMV of property received + Receivables + Unpaid Mortgage assumed by the buyer
How is Contract Price determined for installment method?
Contract Price = Selling Price - Mortgage assumed by the buyer + Excess of unpaid mortgage over cost
How is Initial payment determined for installment method?
Initial payments = Down payment + Expected installment collections in the year of sale + Excess of unpaid mortgage over cost
How is realized gross profit determined for installment method?
IT APPLIES IF THE SALE IS SUBJECT TO BASIC TAX ONLY
Realized Gross Profit = Collections x Gross Profit Rate
Gross Profit Rate = Gross Profit/Contract Price
