While taxable income is based on the method of accounting used by the taxpayer, it will almost

always differ from accounting income. This is so because of a fundamental difference in the
ends the two concepts serve. Accounting attempts to match cost against revenue. Tax law is
aimed at collecting revenue. It is quick to treat an item as income, slow to recognize deductions
or losses. Thus, the tax law will not recognize deductions for contingent future losses except in
very limited situations. Good accounting, on the other hand, requires their recognition, Once this
fundamental difference in approach is accepted, income tax accounting methods can be
understood more easily. 33 Am. Jur. 2d 688.  (Consolidated Mines, Inc. v. Court of Tax
|||

Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157 PHIL 608-641)

It has been held that the basis of the accrual system of accounting is that
obligations incurred in the normal course of business will be discharged in due
course; that the deductions have been "paid or accrued" or "paid and incurred;"
but in order to be accruable in the taxable year, a valid obligation upon which the
profit (or loss, in the case of a deduction) is to be determined must have existed
in the year in which the obligation became binding or enforceable. The date of
the accrued right to receive income, or the obligation to pay or expend money
constituting a deductible loss, is the date that fixes liability. Gain or loss may not
said to be fixed or accrued when the obligation is contingent upon the happening
of a future event. No duty or liability to pay an income tax upon a transaction
arises until the taxable year in which the event constituting the condition
precedent occurs under any system of accounting. Utah Idaho Sugar Co v
Stage Tax Commission, 73 P 2d 974.  (Consolidated Mines, Inc. v. Court of Tax
|||

Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157 PHIL 608-641)

contingent tax liability payable – key word cd asia

Benguet Consolidated Mining Company, hereafter referred to as Benguet, had

no right to share in "Accounts Receivable," hence one-half thereof may not be
accrued as an expense of the Company for a given year.  (Consolidated Mines,
|||

Inc. v. Court of Tax Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157
PHIL 608-641)

Thoughts:
You should not accrue it, because chances are it will be disallowed as an
expense by BIR if taxpayer incorrectly accrue it as an

You may be assessed later for deficiency income.

The right is not yet fixed, so company should not accrue. - the Company that Benguet
Consolidated Mining Company, hereafter referred to as Benguet, had no right to
share in "Accounts Receivable," hence one-half thereof may not be accrued as
an expense of the Company for a given year.  (Consolidated Mines, Inc. v. Court
|||

of Tax Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157 PHIL 608-
641)

Is hybrid method allowed?

when did Benguet's 50% share in the "Accounts Receivable

accrue?  (Consolidated Mines, Inc. v. Court of Tax Appeals, G.R. Nos. L-18843
|||

& 18844, [August 29, 1974], 157 PHIL 608-641)

in those for 1953 and 1954, in each of which years the amount of the "Accounts
Receivable" was less than that of the previous year, and the Company, therefore,
appears to have deducted, as expense, compensation to Benguet bigger (than
what the Commissioner claims is due) by one-half of the difference between the
year's "Accounts Receivable" and the previous year's "Accounts Receivable,"
thus apparently understating its income to that extent.   (Consolidated Mines,
|||

Inc. v. Court of Tax Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157
PHIL 608-641)

you will be understating your income, if you deduct an expense which has not
accrued yet. BIR may go after you and assess you.
we have to distinguish between (1) the method of accounting used by
the Company in determining its net income for tax purposes; and (2) the method
of computation agreed upon between the Company and Benguet in determining
the amount of compensation that was to be paid by the former to the
latter.  (Consolidated Mines, Inc. v. Court of Tax Appeals, G.R. Nos. L-18843 &
|||

18844, [August 29, 1974], 157 PHIL 608-641)

they contractually agreed when it will accrue.

The parties, being free to do so, had contracted that in the method of computing
compensation the basis were "cash receipts" and "cash payments." Once
determined in accordance with the stipulated bases and procedure, then the
amount due Benguet for each month accrued at the end of that month, whether
the Company had made payment or not (see par. XIV of the
agreement).  (Consolidated Mines, Inc. v. Court of Tax Appeals, G.R. Nos. L-
|||

18843 & 18844, [August 29, 1974], 157 PHIL 608-641)

Thoughts:
As applied, there is no contractual agreement between parties here when the
expense will accrue. So accrual definition under tax code applies.

To make the Company deduct as an expense one-half of the "Accounts

Receivable" would, in effect, be equivalent to giving Benguet a right which it did
not have under the contract, and to substitute for the parties' choice a mode of
computation of compensation not contemplated by them  (Consolidated Mines,
|||

Inc. v. Court of Tax Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157
PHIL 608-641)

As applied:
To make the Company deduct as an expense the contingent tax liability would, in
effect, be equivalent to giving BIR a right which it did not have yet considering
that the issue on whether it is taxable is still being contested

**
Since Benguet had no right to one-half of the "Accounts Receivable," the
Company was correct in not accruing said one-half as a deduction. The
Company was not using a hybrid method of accounting, but was consistent in its
use of the accrual method of accounting.  (Consolidated Mines, Inc. v. Court of
|||

Tax Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157 PHIL 608-641)

As applied:

Since BIR had no fixed right to tax, the Company was correct in not accruing said
contingent tax liability as a deduction. The Company was not using a hybrid
method of accounting, but was consistent in its use of the accrual method of
accounting.  (Consolidated Mines, Inc. v. Court of Tax Appeals, G.R. Nos. L-
|||

18843 & 18844, [August 29, 1974], 157 PHIL 608-641)

While taxable income is based on the method of accounting used by the taxpayer, it will almost
always differ from accounting income. This is so because of a fundamental difference in the
ends the two concepts serve. Accounting attempts to match cost against revenue. Tax law is
aimed at collecting revenue. It is quick to treat an item as income, slow to recognize deductions
or losses. Thus, the tax law will not recognize deductions for contingent future losses except in
very limited situations. Good accounting, on the other hand, requires their recognition, Once this
fundamental difference in approach is accepted, income  tax  accounting methods can be
understood more easily. 33 Am. Jur. 2d 688.  (Consolidated Mines, Inc. v. Court of Tax
|||

Appeals, G.R. Nos. L-18843 & 18844, [August 29, 1974], 157 PHIL 608-641)
Filipinas synthetic fiber

For Philippine internal revenue tax purposes, the liability to withhold and pay income tax withheld at
source from certain payments due to a foreign corporation is at the time of accrual and not at the
time of actual payment or remittance thereof", citing BIR Ruling No. 71-003 and BIR Ruling No. 24-
71-003-154-84 dated 12 September 1984 as well as the decision of the Court of Tax Appeals . . . in
CTA Case No. 3307 entitled "Construction Resources of Asia, Inc., versus Commissioner of Internal
Revenue"

“when is contingent liability for tax due?”

should BIR collect the accrued contingent tax liability

item of deduction could be disallowed if not incurred, billed and paid in the same taxable year

- Philko Corp vs CIR

Accrual does not mean it is due.

The fact that he accrued,

Filipinas shell

https://www.lawphil.net/judjuris/juri1999/oct1999/gr_118498_1999.html
On the other hand, "under the accrual basis method of accounting, income is reportable when all the
events have occurred that fix the taxpayer's right to receive the income, and the amount can be
determined with reasonable accuracy. Thus, it is the right to receive income, and not the actual
receipt, that determines when to include the amount in gross income."   Gleanable from this notion
5

are the following requisites of accrual method of accounting, to wit: "(1) that the right to receive the
amount must be valid, unconditional and enforceable, i.e., not contingent upon future time; (2) the
amount must be reasonably susceptible of accurate estimate; and (3) there must be a reasonable
expectation that the amount will be paid in due course."

In the case at bar, after a careful examination of pertinent records, the Court concurred in the finding
by the Court of Appeals in CA GR. SP No. 32922 "that there was a definite liability, a clear and
imminent certainty that at the maturity of the loan contracts, the foreign corporation was going to
earn income in an ascertained amount, so much so that petitioner already deducted as business
expense the said amount as interests due to the foreign corporation. This is allowed under the law,
petitioner having adopted the "accrual method" of accounting in reporting its incomes."