chapter 2

Question 1

is a method of accounting whereby all items of gross income received during the year shall be accounted for such taxable year and that only expenses actually paid for shall be claimed as deductions during the year.

Answer 1

. Cash Basis

Question 2

This method of accounting is generally used by taxpayers who do not keep regular books of accounts.

Answer 2

Cash Basis

Question 3

Under this method, income is realized upon receipt of cash or its equivalent including those constructively received (such as deposits for the taxpayer’s account by customers) but not including gifts or donations.

Answer 3

Cash Basis

Question 4

Users of cash basis accounting are mostly individuals engaged in business and practice of profession, professional partnerships and professional service Organizations.

Answer 4

Cash Basis

Question 5

Engage in business
Practice of profession
Professional partnerships
Professional service organizations

Answer 5

cash basis

Question 6

is a method of accounting for income in the period it is earned regardless of whether it has been received or not.

Answer 6

Accrual Basis

Question 7

In the same manner, expenses are accounted for in the period they are incurred and not in the period they are paid.
Under this method, net income is being measured by the excess of income earned during the period over the expenses incurred.

Answer 7

accrual basis

Question 8

Expenses not being claimed as deductions by taxpayers in the current year when they are incurred cannot be claimed as deduction from income for the succeeding year.
Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year.

Answer 8

accrual basis

Question 9

basis of accounting is being used by taxpayers whose nature of business uses inventories since this method of accounting will correctly reflect income by matching purchases and expenses against sales.
This method is being applied by most medium and large corporations.

Answer 9

accrual basis

Question 10

is an accounting method applicable to contractors in the construction of building, installation of equipment and other fixed assets, or other construction work covering a period in excess of one year

Answer 10

Completion of Contract Basis

Question 11

. Under this method, gross income is to be reported in the taxable year in which the contract is fully completed and accepted by the contractee if the taxpayer elected it as a consistent practice to treat such income, provided that such method clearly reflects the net income.

Answer 11

Completion of Contract Basis

Question 12

Under this method, all expenditures are deducted from gross income during the life of the contract which are properly allocated thereto, taking into consideration any materials and supplies charged to the work under the contract but remaining on hand at the time of the Completion.

Answer 12

Completion of Contract Basis

Question 13

However, pursuant to Republic Act No. 8424 which took effect on January 1, 1998, contractors are no longer allowed to adopt this method of reporting their income derived in whole or in part from long-term contracts.

Answer 13

Completion of Contract Basis

Question 14

is a method applicable in the case of a building, installation or construction contract covering a period in excess of one year whereby gross income derived from such contract may be reported upon the basis of percentage of completion.

Answer 14

Percentage of Completion Basis

Question 15

In determining the percentage of completion of a contract, generally one of the following methods is used:

Answer 15

Percentage of Completion Basis

Question 16

1. The costs incurred under the contract as of the end of the tax year are compared with the
   estimated total contract costs; or
2. The work performed on the contract as of the end of the tax year is compared with the
   estimated work to be performed.

Answer 16

Percentage of Completion Basis

Question 17

In such case, the return should be accompanied by a certificate of the architect or engineer
showing the fof completion during the taxable year of the entire work performed
under contract.

Answer 17

Percentage of Completion Basis

Question 18

There should be deducted from such gross income all expenditures made during the taxable year on account of the contract, account being taken of the materials and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. Beginning January 1, 1998 income from long-term contracts are required to be reported using this method only.

Answer 18

Percentage of Completion Basis

Question 19

is a method considered appropriate when collections extend over relatively long periods of time and there is a strong possibility that full collection will not be made.

Answer 19

. Installment Basis

Question 20

As customers make installment payments, the seller recognizes the gross profit on sale in proportion to the cash collected.

Answer 20

. Installment Basis

Question 21

is a method applicable only to farmers engaged in the production of crops which take more than a year from the time of planting to the process of gathering and disposal.

Answer 21

. Crop Year Basis

Question 22

Expenses paid or incurred are deductible in the year the gross income from the sale of the crops are realized.

Answer 22

. Crop Year Basis

Question 23

This method is being applied by most medium and large corporations.

Answer 23

accrual basis

Question 24

refers to the systematic and detailed recording of financial transactions of a business.

Answer 24

accounting

Question 25

is the process of recording financial transactions pertaining to a business.

Answer 25

accounting

Question 26

The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities.

Answer 26

accounting

Question 27

plays a vital role in running a business because it helps you track income and expenditures, ensure statutory compliance, and provide investors, management, and government with quantitative financial information which can be used in making business decisions.

Answer 27

Accounting

Question 28

The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.

Answer 28

acoounting

Question 29

rovides you with information about the profit and loss

Answer 29

income statements

Question 30

gives you a clear picture on the financial position of your business on a particular date.

Answer 30

balance sheet

Question 31

is a bridge between the income statement and balance sheet and reports the cash generated and spent during a specific period of time.

Answer 31

cash flow statement

Question 32

is a structure of accounting methods focused on taxes rather than the appearance of public financial statements.

Answer 32

tax accounting

Question 33

Tax accounting is governed by the Internal Revenue Code, which dictates the specific rules that companies and individuals must follow when preparing their tax returns.

Answer 33

tax accounting

Question 34

Tax accounting on the other hand deals with:
(4)

Answer 34

Taxes
Tax Preparation
Tax Returns
Tax Payments