LESSON 4

TOPIC: Accounting methods and tax schemes

Assignment:

1. What are the types of accounting methods and its definition?

- An accounting method consists of the rules and procedures a company follows

in reporting its revenues and expenses. There are two main accounting methods:
cash accounting and accrual accounting.
- In cash accounting, transactions are only recorded when cash is spent or
received. And also, a sale is recorded when the payment is received and an
expense is recorded only when a bill is paid. The cash accounting method is the
method most people use in managing their personal finances and it is
appropriate for businesses up to a certain size.
- Accrual accounting is based on the matching principle, which is intended to
match the timing of revenue and expense recognition. By matching revenues
with expenses, the accrual method gives a more accurate picture of a company's
true financial condition. Under the accrual method, transactions are recorded
when they are incurred rather than awaiting payment. This means a purchase
order is recorded as revenue even though the funds are not received
immediately. The same goes for expenses in that they are recorded even though
no payment has been made.

Reference: Accounting Method Definition. (2020, November 23). Investopedia.

https://www.investopedia.com/terms/a/accountingmethod.asp#:~:text=The%20two%20main
%20accounting%20methods,(GAAP)%20requires%20accrual%20accounting..
Quiz:

1. What are the types of income taxation schemes?

According to the book titled "The Introduction to Taxation" uploaded by Pinky

Cherrie in 2020, there are three income taxation schemes under the National
Internal Revenue Code (NIRC), which are: final income taxation, capital gains
taxation, and regular income taxation. 

2. What are the differences between passive income and active income?

Passive income is earned with very minimal or even no active involvement of the
taxpayers in the earning process. Examples of passive income include interest
income from the banks, dividends from domestic corporations, and royalties. And
also, the active income or regular income arises from transactions requiring a
considerable degree of effort or undelivered by the taxpayer. Active income is the
direct opposite of passive income. Examples of active income include:
compensation income, business income, and professional income.

Https://www.studocu.com/en-us/document/xavier-university/introduction-to-taxation/income-tax-ch-
4/17015890. (n.d.).

Note: Please check Reference Folder to get the answer of Assignment and Quiz