FUNDAMENTALS OF ACCOUNTING, BUSINESS AND MANAGEMENT PART 2

LECTURE

TOPIC: BASIC DOCUMENTS AND TRANSACTIONS RELATED TO BANK DEPOSITS

At the end of the lesson, the students must be able to:

1. identify the types of bank accounts normally maintained by a business
2. differentiate a savings account from a current or checking account
3. prepare bank deposit and withdrawal slips
4. identify and prepare checks
5. identify and understand the contents of a bank statement

A bank is a licensed and regulated financial institution that lends money, accepts deposits and
carries out other financial transactions for its clients.
BASIS FOR
SAVING ACCOUNT CURRENT ACCOUNT
DIFFERENCE

Meaning Saving bank account is an account meant Current account refers to a running
for individuals who like to save for meeting account, in which there is no limit on
their future financial requirements. the operation, during a working day.

Objective To encourage savings of a person. To support frequent and regular

transactions.

Suitable for Individual Businessman or company

Interest Paid Not paid

Withdrawals Limited Unlimited

Passbook Provided by banks Not issued by banks.

Overdraft Not allowed Allowed

Opening Less amount is required to open a savings High amount is required for opening a
balance bank account. current account.

Bank deposits consist of money placed into banking institutions for safekeeping.
These deposits are made to deposit accounts such as savings accounts, checking accounts
and money market accounts.

A withdrawal involves removing funds from a bank account, savings plan, pension or trust.

An overdraft occurs when money is withdrawn from a bank account and the available balance
goes below zero. In this situation the account is said to be "overdrawn".

A bank statement is a record, typically sent to the account holder every month, summarizing all
the transactions in an account throughout the time from the previous statement to the current
statement. The opening balance from the previous month added to the total of all transactions
during the period results in the closing balance for the current statement.

A deposit slip is a small written form that is sometimes used to deposit funds into a bank
account. A deposit slip indicates the date, the name of the depositor, the depositor's account
number, and the amounts of checks, cash, and coin being deposited.

A withdrawal slip is a bank document on which a person writes the date, account number and
amount of money to withdraw from a bank. It is called a withdrawal slip because it is used to
make a withdrawal from a person's account.

Sample Bank Statement

1|Page
 Sample Check

Assignment: Prepare a checkbook per group.

TOPIC: BANK RECONCILIATION STATEMENT

At the end of the lesson, the students must be able to:

1. describe the nature of a bank reconciliation statement
2. identify common reconciling items and describe each of them
3. analyze the effects of the identified reconciling items
4. prepare a bank reconciliation statement

A company's cash balance at bank and its cash balance according to its accounting records
usually do not match. This is due to the fact that, at any particular date, checks may be
outstanding, deposits may be in transit to the bank, errors may have occurred etc. Therefore
companies have to carry out bank reconciliation process which prepares a statement
accounting for the difference between the cash balance in company's cash account and the
cash balance according to its bank statement.
Following are the transactions which usually appear in company's records but not in the bank
statement:
 Deposits in Transit: Deposits which have been sent by the company to the bank but have not
been received by the bank at proper time before the issuance of bank statement.
 Checks Outstanding: Checks which have been issued by the company but were not presented
or cleared before the issuance of bank statement.
 Bank errors are mistakes made by the bank. Bank errors could include the bank recording an
incorrect amount, entering an amount that does not belong on a company's bank statement, or
omitting an amount from a company's bank statement. The company should notify the bank of
its errors. Depending on the error, the correction could increase or decrease the balance shown
on the bank statement. (Since the company did not make the error, the company's records are
not changed.)
Following are the transactions which usually appear in bank statement but not in company's
cash account:

2|Page
 Service Charges: Service charges may have been deducted by the bank. Such charges are
usually not known to the company before the issuance of bank statement.
 Interest Income: If any interest income has been earned by the company on its bank account,
it is not usually entered in company's cash account before the issuance of bank statement.
 NSF Checks: NSF stands for "not sufficient funds". These are the checks deposited by the
company in bank account but the bank is unable to receive payment on those checks due to
insufficient funds in the payer's account.
 Errors in the company's Cash account result from the company entering an incorrect amount,
entering a transaction that does not belong in the account, or omitting a transaction that should
be in the account. Since the company made these errors, the correction of the error will be
either an increase or a decrease to the balance in the Cash account on the company's books.
Example
Company A's bank statement dated Dec 31, 2011 shows a balance of ₱24,594.72. The
company's cash records on the same date show a balance of ₱23,196.79. Following additional
information is available:
1. Following checks issued by the company to its customers are still outstanding:
No. 846 issued on Nov 29 ₱320.00
No. 875 issued on Dec 26 49.21
No. 878 issued on Dec 29 275.00
No. 881 issued on Dec 31 186.50
2. A deposit of ₱400.00 made on Dec 31 does not appear on bank statement.
3. An NSF check of ₱850 was returned by the bank with the bank statement.
4. The bank charged ₱50 as service fee.
5. Interest income earned on the company's average cash balance at bank was ₱1,237.22.
6. The bank collected a note receivable on behalf of the company. Amount received by the
bank on the note was ₱550. This includes ₱50 interest income. The bank charged a
collection fee of ₱10.
7. A deposit of ₱430 was incorrectly entered as ₱340 in the company's cash records.
Prepare a bank reconciliation statement using the above information.

Item #1.The bank statement for August 2015 shows an ending balance of ₱3,490.
On August 31 the bank statement shows charges of ₱35 for the service charge
Item #2. for maintaining the checking account.
On August 28 the bank statement shows a return item of ₱100 plus a related
bank fee of ₱10. The return item is a customer's check that was returned
Item #3. because of insufficient funds. The check was also marked "do not redeposit."
Item #4. The bank statement shows a charge of ₱80 for check printing on August 20.
The bank statement shows that ₱8 was added to the checking account on
Item #5. August 31 for interest earned by the company during the month of August.
The bank statement shows that a note receivable of ₱1,000 was collected by
the bank on August 29 and was deposited into the company's account. On the
same day, the bank withdrew ₱40 from the company's account as a fee for
Item #6. collecting the note receivable.
Item #7. The company's Cash account at the end of August shows a balance of ₱967.
During the month of August the company wrote checks totaling more than
₱50,000. As of August 31 ₱3,021 of the checks written in August had not
yet cleared the bank and ₱200 of checks written in June had not yet cleared
Item #8. the bank.
The ₱1,450 of cash received by the company on August 31 was recorded on
the company's books as of August 31. However, the ₱1,450 of cash receipts
Item #9. was deposited at the bank on the morning of September 1.
On August 29 the company's Cash account shows cash sales of ₱145. The
bank statement shows the amount deposited was actually ₱154. The company
Item #10. reviewed the transactions and found that ₱154 was the correct amount.
TOPIC: ACCOUNTING PRACTICE SET

At the end of the lesson, the students must be able to:

1. perform the steps in the accounting cycle, from preparation of documents to the
preparation, analysis, and interpretation of financial statements

3|Page
 Source documents are the physical basis upon which business transactions are recorded. They
usually contain the following information:
 A description of a business transaction
 The date of the transaction
 A specific amount of money
 An authorizing signature
External documents and forms are those that are issued or given mainly to parties outside the
business as proof of a transaction done with the company.
Internal documents on the other hand are those that are generated and maintained principally to
establish internal control and monitoring.
Purchase Requisition
A Purchase Requisition is an internal document filled out by any of the departments within the
company of the items they want the purchasing department to buy for them.

Purchase Order
A Purchase Order is an external document made by the company, which is sent out to suppliers
for a request to purchase goods or to provide a service.

4|Page
Receiving Report
A Receiving Report is another internal document made by the receiving department confirming
the receipt of items or services acquired by the company.

Check/Cash Voucher
A Check or Cash Voucher is an internal document proving the disbursement of funds from the
company.

5|Page
Delivery Receipt
A Delivery Receipt is an internal document produced by the company for deliveries of goods or
services rendered by the company to its customers.

Sales Invoice
A Sales Invoice or Bill is an external document produced by the company and is sent out to its
customers to bill them for service rendered or goods purchased.

Official Receipt
An Official Receipt is another external document issued by the company to its customers
evidencing the receipt of payment for services rendered or goods delivered.

6|Page
Assignment: Prepare 20 COPIES OF all these documents and bring carbon paper.

TOPIC: INCOME AND BUSINESS TAXATION

At the end of the lesson, the students must be able to:

1. define income and business taxation and its principles and processes
2. prepare the list of sources of gross income from compensation and gross income from
business, and the corresponding personal and additional deductions
3. explain the procedure in the computation of gross taxable income and tax due
4. prepare the BIR forms
5. explain the principles and purposes of taxation
6. distinguish individual from business taxation
7. compute the gross taxable income and tax due

FUNDAMENTAL PRINCIPLES IN TAXATION

Taxation
Taxation is the inherent power of the sovereign, exercised through the legislature, to
impose burdens upon subjects and objects within its jurisdiction for the purpose of raising
revenues to carry out the legitimate objects of government.
It is also defined as the act of levying a tax, i.e. the process or means by which the
sovereign, through its law-making body, raises income to defray the necessary expenses of
government. It is a method of apportioning the cost of government among those who, in some
measure, are privileged to enjoy its benefits and must therefore bear its burdens.
Taxes
Taxes are the enforced proportional contributions from persons and property levied by
the law-making body of the State by virtue of its sovereignty for the support of the government
and all public needs.

7|Page
 Essential elements of a tax
1. It is an enforced contribution.
2. It is generally payable in money.
3. It is proportionate in character.
4. It is levied on persons, property, or the exercise of a right or privilege.
5. It is levied by the State which has jurisdiction over the subject or object of taxation.
6. It is levied by the law-making body of the State.
7. It is levied for public purpose or purposes.
Purposes of taxation
1. Revenue or fiscal: The primary purpose of taxation on the part of the government is to
provide funds or property with which to promote the general welfare and the protection of
its citizens and to enable it to finance its multifarious activities.
2. Non-revenue or regulatory: Taxation may also be employed for purposes of regulation
or control.
a) Imposition of tariffs on imported goods to protect local industries.
b) The adoption of progressively higher tax rates to reduce inequalities in wealth and income.
c) The increase or decrease of taxes to prevent inflation or ward off depression.
CLASSIFICATION OF TAXES
AS TO SUBJECT MATTER OR OBJECT
1. Personal, poll or capitation tax - Tax of a fixed amount imposed on persons residing
within a specified territory, whether citizens or not, without regard to their property or the
occupation or business in which they may be engaged, i.e. community tax.
2. Property tax - Tax imposed on property, real or personal, in proportion to its value or in
accordance with some other reasonable method of apportionment.
3. Excise tax - A charge imposed upon the performance of an act, the enjoyment of a
privilege, or the engaging in an occupation.
AS TO PURPOSE
1. General/fiscal/revenue tax - A general/fiscal/revenue tax is that imposed for the purpose
of raising public funds for the service of the government.
2. Special/regulatory tax - A special or regulatory tax is imposed primarily for the regulation
of useful or non-useful occupation or enterprises and secondarily only for the purpose of raising
public funds.
AS TO WHO BEARS THE BURDEN
1. Direct tax - A direct tax is demanded from the person who also shoulders the burden of
the tax. It is a tax which the taxpayer is directly or primarily liable and which he or she cannot
shift to another.
2. Indirect tax - An indirect tax is demanded from a person in the expectation and intention
that he or she shall indemnify himself or herself at the expense of another, falling finally upon
the ultimate purchaser or consumer. A tax which the taxpayer can shift to another.
AS TO SCOPE OF THE TAX
1. National tax - A national tax is imposed by the national government.
2. Local tax - A local tax is imposed by municipal corporations or local government units
(LGUs).
AS TO THE DETERMINATION OF AMOUNT
1. Specific tax - A specific tax is a tax of a fixed amount imposed by the head or number or
by some other standard of weight or measurement. It requires no assessment other than the
listing or classification of the objects to be taxed.
2. Ad valorem tax - An ad valorem tax is a tax of a fixed proportion of the value of the
property with respect to which the tax is assessed. It requires the intervention of assessors or
appraisers to estimate the value of such property before the amount due from each taxpayer
can be determined.
AS TO GRADATION OR RATE
1. Proportional tax - Tax based on a fixed percentage of the amount of the property receipts
or other basis to be taxed. Example: real estate tax.
2. Progressive or graduated tax - Tax the rate of which increases as the tax base or bracket
increases. Example: income tax.
3. Regressive tax - Tax the rate of which decreases as the tax base or bracket increases.
There is no such tax in the Philippines.
TAX SYSTEMS
Progressive system of taxation
A progressive system of taxation means that tax laws shall place emphasis on
direct taxes rather than on indirect taxes, with ability to pay as the principal criterion.

8|Page
Regressive tax rates
Tax the rate of which decreases as the tax base or bracket increases. There are
no regressive taxes in the Philippine jurisdiction.

FOR SELF-EMPLOYED AND MIXED INCOME INDIVIDUALS/ INDIVIDUALS ENGAGED IN

BUSINESS Newly-Registered (In General)

Tax Form BIR Form 1901- Application for Registration for Self-Employed and Mixed Income
Individuals, Estates/Trusts
Proof of Payment of Annual Registration Fee (BIR Form 0605) – current year.
Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-
Business/Non-Profession Related Income) and For Marginal Income Earners
Tax Form BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely
Compensation Income Including Non-Business/Non-Profession Related Income)
Documentary Requirements
1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316)
2. Waiver of the Husband’s right to claim additional exemption, if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Proof of Foreign Tax Credits, if applicable
5. Income Tax Return previously filed and proof of payment, if filing an amended return for the
same taxable year
Procedures
1. Fill-up BIR Form 1700 in triplicate.
Deadline
On or before the 15th day of April of each year covering taxable income for the preceding
taxable year
Annual Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those
With Mixed Income, i.e., Compensation Income and Income from Business and/or
Practice of Profession )
Tax Form BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals,
Estates and Trusts Including Those With Both Business and Compensation Income)
Procedures
1. Fill-up BIR Form 1701 in triplicate copies.
Deadline
Final Adjustment Return or Annual Income Tax Return - On or before the 15th day of April of
each year covering income for the preceding year
Quarterly Income Tax For Self-Employed Individuals, Estates And Trusts (Including
Those With Mixed Income, I.E., Compensation Income and Income from Business and/or
Practice of Profession)
Tax FormBIR Form 1701Q - Quarterly Income Tax Return For Self-Employed Individuals,
Estates and Trusts (Including those with both Business and Compensation Income)
Procedures
1. Fill-up BIR Form 1701Q in triplicate.
Deadlines
• April 15 – for the first quarter
• August 15 – for the second quarter
• November 15 – for the third quarter
Tax Rate
A. For Individuals Earning Purely Compensation Income and Individuals Engaged in
Business and Practice of Profession
Amount of Net Taxable
Rate
Income
Over But Not Over
P10,000 5%
P10,000 P30,000 P500 + 10% of the Excess over P10,000
P30,000 P70,000 P2,500 + 15% of the Excess over P30,000
P70,000 P140,000 P8,500 + 20% of the Excess over P70,000
P140,000 P250,000 P22,500 + 25% of the Excess over P140,000

9|Page
P250,000 P500,000 P50,000 + 30% of the Excess over P250,000
P125,000 + 32% of the Excess over P500,000 in 2000
P500,000
and onward

1) What is income?
Income means all wealth, which flows into the taxpayer other than as a mere return of capital.
2) What is Taxable Income?
Taxable income means the pertinent items of gross income specified in the Tax Code as
amended, less the deductions and/or personal and additional exemptions, if any, authorized for
such types of income, by the Tax Code or other special laws.
3) What is Gross Income?
Gross income means all income derived from whatever source.
4) What comprises gross income?
Gross income includes, but is not limited to the following:
Compensation for services, in whatever form paid, including but not limited to fees, salaries,
wages, commissions and similar item
Gross income derived from the conduct of trade or business or the exercise of profession
5) What are some of the exclusions from gross income?
Life insurance
Compensation for injuries or sickness
Miscellaneous items
13th month pay and other benefits
GSIS, SSS, Medicare and other contributions
6) What are the allowable deductions from gross income?
Except for taxpayers earning compensation income arising from personal services rendered
under an employer-employee relationships where the only deduction provided that the gross
family income does not exceed P250,000 per family is the premium payment on health and/or
hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions
from gross income:
a)Optional Standard Deduction - an amount not exceeding 40% of the net sales for individuals
and gross income for corporations; or
b) Itemized Deductions which include the following:
Expenses Depletion of Oil and Gas Wells and Mines
Interest Charitable Contributions and Other
Taxes Contributions
Losses Research and Development
Bad Debts Pension Trusts
Depreciation
In addition, individuals who are either earning compensation income, engaged in business or
deriving income from the practice of profession are entitled to personal and additional
exemptions as follows:
Personal Exemptions:
For single individual or married individual judicially decreed as legally separated with no
qualified dependents………………………………………P 50,000.00
For head of family……………………………P 50,000.00
For each married individual *…………P 50,000.00
Note: In case of married individuals where only one of the spouses is deriving gross income,
only such spouse will be allowed to claim the personal exemption.
Additional Exemptions:
For each qualified dependent, an P25,000 additional exemption can be claimed but only up to 4
qualified dependents
The additional exemption can be claimed by the following:
The husband who is deemed the head of the family unless he explicitly waives his right in favor
of his wife
The spouse who has custody of the child or children in case of legally separated spouses.
Provided, that the total amount of additional exemptions that may be claimed by both shall not
exceed the maximum additional exemptions allowed by the Tax Code.
The individuals considered as Head of the Family supporting a qualified dependent
The maximum amount of P 2,400 premium payments on health and/or hospitalization insurance
can be claimed if:
Family gross income yearly should not be more than P 250,000

10 | P a g e
For married individuals, the spouse claiming the additional exemptions for the qualified
dependents shall be entitled to this deduction
7) Who are required to file the Income Tax returns?
Individuals
8) Who are not required to file Income Tax returns?
a. An individual who is a minimum wage earner
b. An individual whose gross income does not exceed his total personal and additional
exemptions
c. An individual whose compensation income derived from one employer does not exceed P
60,000 and the income tax on which has been correctly withheld
9) How is Income Tax payable of individuals (resident citizens and non-resident
citizens)computed?
Gross Income P ___________
Less: Allowable Deductions (Itemized or Optional) ___________
Net Income P ___________
Less: Personal & Additional Exemptions ___________
Net Taxable Income P ___________
Multiply by Tax Rate (5 to 32%) ____________
Income Tax Due: Tax withheld (per BIR From 2316/2304) P ___________
Income tax payable P____________

Percentage tax is a business tax imposed on persons or entities/transactions:

Monthly Percentage Tax

Tax Form BIR Form 2551M - Monthly Percentage Tax Return
Procedures
Fill-up BIR Form 2551M in triplicate copies
When to File/Pay
Manual Filing
Within twenty (20) days following the end of each month
Electronic Filing
For taxpayers enrolled with the Electronic Filing and Payment System (eFPS), in accordance
with the schedule set forth in RR No. 26-2002 as follows:
Group A : Twenty five (25) days following the end of the month
Group B : Twenty four (24) days following the end of the month
Group C : Twenty three (23) days following the end of the month
Group D : Twenty two (22) days following end the of the month
Group E : Twenty one (21) days following the end of the month

Quarterly Percentage Tax

Tax FormBIR Form 2551Q - Quarterly Percentage Tax Return
Procedures
Fill-up BIR Form 2551Q in triplicate copies.
When to File/Pay
Manual Filing
Within twenty (20) days after the end of each taxable quarter
Electronic Filing
Within twenty (20) days after the end of each taxable quarter

Value-Added Tax is a form of sales tax. It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on importation of
goods into the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer,
transferee or lessee of goods, properties or services.

Who are required to file vat returns?

Any person or entity who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties and renders services subject to VAT, if the aggregate amount of

11 | P a g e
actual gross sales or receipts exceed One Million Nine Hundred Nineteen Thousand Five
Hundred Pesos (P1,919,500.00).
A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who imports goods

Monthly VAT Declarations

Tax FormBIR Form 2550M - Monthly Value-Added Tax Declaration (February 2007 ENCS)
Procedures
1. Fill-up BIR Form No. 2550M in triplicate copies (two copies for the BIR and one copy for the
taxpayer)
Deadline
Manual Filing
Not later than the 20th day following the end of each month

Quarterly Value-Added Tax Return

Tax Form
BIR Form No. 2550Q - Quarterly Value-Added Tax Return (February 2007 ENCS)
Procedures
1. Fill-up BIR Form 2550Q in triplicate copies (two copies for the BIR and one copy for the
taxpayer)
Deadline
Within twenty five (25) days following the close of taxable quarter.

12 | P a g e