Chapter 2

Question 1

“Accounting Methods recognized by the Tax Code”

Answer 1

A. Cash Basis
B. Accrual Basis
C. Completion of Contract Basis
D. Percentage of Completion Basis
E. Installment Basis
F. Crop Year Basis

Question 2

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 2

cash basis

Question 3

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

Answer 3

cash basis

Question 4

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 4

cash basis

Question 5

Users of this are mostly individuals engaged in business and practice of profession, professional partnerships and professional service organizations.

Answer 5

cash basis accounting

Question 6

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.

Answer 7

accrual basis

Question 8

Under this method, net income is being measured by the excess of income earned during the period over the expenses incurred.

Answer 8

accrual basis

Question 9

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.

Answer 9

accrual basis

Question 10

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 10

accrual basis

Question 11

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.

Answer 11

The accrual basis of accounting

Question 12

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

Answer 12

accrual basis

Question 13

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 13

completion of contract basis

Question 14

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 14

completion of contract basis

Question 15

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 15

completion of contact basis

Question 16

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

Answer 16

January 1, 1998

Question 17

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 17

Percentage of Completion Basis

Question 18

Beginning January 1, 1998 income from log-term contracts are required to be reported using this method only. (T or F)

Answer 18

True

Question 19

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 does not recognizes the gross profit on sale in proportion to the cash collected. (t or f)

Answer 20

false (recognize)

Question 21

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

Crop year basis:
Expenses paid or incurred are not deductible in the year the gross income from the sale of the crops are realized.
(t or f)

Answer 22

false (deductible)

Question 23

percentage of completion basis:
The costs incurred under the contract as of the end of the tax year are compared with the estimated total contract costs;
(t or f)

Answer 23

true

Question 24

percentage of completion basis:
The work performed on the contract as of the end of the tax year is compared with the estimated work to be performed. (t or f)

Answer 24

true