Bank Reconciliation Basics
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Questions and Answers

What is the income tax liability for a citizen of the Philippines?

  • Only income earned within the Philippines
  • No income tax liability
  • Only income earned outside the Philippines
  • All income earned both inside and outside the Philippines (correct)

How is a non-resident citizen taxed in the Philippines?

  • Only on income earned outside the Philippines
  • No taxable income
  • On all income earned inside and outside the Philippines
  • Only on income earned in the Philippines (correct)

Which of the following statements about foreign corporations in the Philippines is true?

  • They are taxed on all their global income
  • They are taxed only on income earned outside the Philippines
  • They are exempt from income tax
  • They are taxed only on income earned in the Philippines (correct)

What is the tax liability for an Overseas Filipino Worker (OFW) in terms of their income?

<p>Only taxed on income earned within the Philippines (B)</p> Signup and view all the answers

How is a domestic corporation taxed in the Philippines?

<p>On income derived from both domestic and international sources (D)</p> Signup and view all the answers

What is the purpose of bank reconciliation?

<p>To match accounting records with bank statements (C)</p> Signup and view all the answers

What does NSF stand for in banking terms?

<p>Not Sufficient Funds (D)</p> Signup and view all the answers

Which component is found at the top of the first page of a bank statement?

<p>Account Summary (D)</p> Signup and view all the answers

What will likely happen when an entity attempts to cash an NSF check?

<p>A processing fee may be charged (A)</p> Signup and view all the answers

Which of the following accurately describes the Book Balance?

<p>It reflects the cash balance recorded in the entity's accounting system (A)</p> Signup and view all the answers

What does the ending balance on a bank statement represent?

<p>The balance after subtracting all fees and charges (D)</p> Signup and view all the answers

What happens to the interest earned listed on the bank statement?

<p>It must be added to the company's Book Balance (A)</p> Signup and view all the answers

What is likely to be included in the Transaction Detail section of a bank statement?

<p>Individual transactions including deposits and withdrawals (C)</p> Signup and view all the answers

What types of compensation are included in gross income?

<p>Salaries, wages, fees, commissions, and similar items (C)</p> Signup and view all the answers

What is the tax rate that generally applies to interest income?

<p>20% final withholding tax (C)</p> Signup and view all the answers

Which of the following is subject to capital gains tax when derived from property transactions?

<p>Gains from dealings in land and buildings (A)</p> Signup and view all the answers

What type of income is rentals considered under gross income sources?

<p>Passive income (C)</p> Signup and view all the answers

Dividends are generally subject to which withholding tax rate for individuals?

<p>10% final withholding tax (A)</p> Signup and view all the answers

Which income type is specifically exempt for corporations?

<p>Dividends (C)</p> Signup and view all the answers

What is the tax treatment for prizes and winnings under gross income?

<p>Subject to 20% final withholding tax unless tax-exempt (D)</p> Signup and view all the answers

Which statement about royalties is accurate?

<p>Royalty income is taxed differently based on the source (D)</p> Signup and view all the answers

What is the book balance in relation to a bank account?

<p>The amount recorded in the company’s general ledger for the bank account. (D)</p> Signup and view all the answers

What is the Adjusted Method in bank reconciliation?

<p>Balances per bank and per book are separately determined. (A)</p> Signup and view all the answers

What does the Bank to Book Method adjust?

<p>The bank balance to match the book balance. (D)</p> Signup and view all the answers

What defines a deposit in transit?

<p>Cash or checks received and recorded by the entity but not yet reflected on the bank statement. (B)</p> Signup and view all the answers

Which of the following items is considered a reconciling item resulting from timing differences?

<p>Outstanding checks. (B)</p> Signup and view all the answers

Why might a company's bank balance differ from the bank's statement balance?

<p>Timing differences between transactions recorded in the company’s books and those processed by the bank. (B)</p> Signup and view all the answers

What characterizes deposits in transit?

<p>They have not cleared the bank and will appear in the next period. (B)</p> Signup and view all the answers

What is an outstanding check?

<p>A check payment recorded by the issuing entity, but which has not yet cleared the bank. (B)</p> Signup and view all the answers

How does the Tax Reform for Acceleration and Inclusion (TRAIN) affect tax contributions?

<p>The first $250,000 of annual income is tax-free. (D)</p> Signup and view all the answers

What must a company do if it records a deposit incorrectly?

<p>Adjust its book balance to correct the error. (C)</p> Signup and view all the answers

What is the primary purpose of a bank reconciliation statement?

<p>To compare the bank balance per accounting records with that stated in the bank statement. (A)</p> Signup and view all the answers

What is a potential result of the TRAIN reform for the majority of taxpayers?

<p>An increase in revenue from the tax reforms. (B)</p> Signup and view all the answers

Which of the following items are NOT recorded in the bank reconciliation statement?

<p>Investment income received in cash. (C)</p> Signup and view all the answers

What should a company do if the bank identifies an error in recording a deposit?

<p>Adjust their financial statements to reflect the bank's correction. (C)</p> Signup and view all the answers

Which group is targeted by the higher tax rate of 35% under the TRAIN reform?

<p>Individuals in the top 0.1% of earners. (A)</p> Signup and view all the answers

What role do outstanding checks play in bank reconciliation?

<p>They are deducted from the bank balance during reconciliation. (C)</p> Signup and view all the answers

What is the purpose of BIR Form 2316 in the context of income tax filing?

<p>It serves as a statement issued by the employer. (B)</p> Signup and view all the answers

What is the maximum exemption amount for individual taxpayers in the Philippines?

<p>₱ 50,000 (C)</p> Signup and view all the answers

What filing requirement applies to taxpayers deriving income solely from compensation?

<p>They file BIR Form 1700. (C)</p> Signup and view all the answers

How are tax rates structured under the Philippine individual income tax system?

<p>They are progressive based on income levels. (C)</p> Signup and view all the answers

What happens to the income tax withheld by the employer?

<p>It is deducted from the employee's tax due. (B)</p> Signup and view all the answers

Which form is required for the income tax filing of a business organized as a sole proprietorship?

<p>BIR Form 1701 (B)</p> Signup and view all the answers

How much additional exemption is granted for each qualified dependent, up to a maximum of four dependents?

<p>₱ 25,000 (C)</p> Signup and view all the answers

What type of income does a partner in a general professional partnership derive?

<p>Distributive share from net income (D)</p> Signup and view all the answers

Flashcards

Bank Reconciliation

Matching the company's cash account records with the bank statement to find differences and update records.

Book Balance

The cash balance according to the company's accounting records.

Bank Balance

The cash balance shown on the bank statement.

NSF Check

A check that the bank does not honor because of insufficient funds.

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Bank Statement

A document from a bank that shows all transactions for a given period.

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Reconciliation Difference

Discrepancy between the book balance and bank balance.

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Closing Balance

The final balance of the account at the end of the period.

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Insufficient Funds

A check written against a bank account without sufficient funds.

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Deposit in Transit

A deposit received and recorded by the company but not yet by the bank.

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Outstanding Check

A check written by a company but not yet processed by the bank.

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Deposit Errors

Mistakes in recording deposits or insufficient funds on checks deposited.

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Bank Reconciliation Statement

A report that shows why a company's book balance differs from the bank's balance.

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Reconciling Items

Items that cause a difference between the company's book balance and the bank statement balance.

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Taxable Income for Filipinos

A citizen of the Philippines, living in the Philippines, is taxable on all income earned inside and outside the Philippines.

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Taxable Income for Non-Resident Citizens

A non-resident citizen is taxable only on income earned in the Philippines.

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Taxable Income for OFWs

An OFW is taxable only on income earned in the Philippines.

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Taxable Income for Foreigners

A foreigner living in the Philippines is taxable only on income earned in the Philippines.

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Taxable Income for Domestic Corporations

A domestic corporation is taxable on all income derived from sources inside and outside the Philippines.

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Adjusted Method (Bank Reconciliation)

Separately determining balances per bank and per book for reconciliation.

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Book to Bank Method

Adjusting the book balance to match the bank balance.

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Bank to Book Method

Adjusting the bank balance to match the book balance.

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Timing Differences

Differences arising when transactions are recorded at different dates in the bank's and company's records.

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TRAIN

Tax Reform for Acceleration and Inclusion, a Philippine tax reform plan.

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Gross Income Sources

Different types of income that are subject to taxation under the National Internal Revenue Code of 1997.

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Compensation for Services

Income received from wages, salaries, commissions, fees, or similar payments for work performed.

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Business or Profession Income

Income generated from running a company or practicing a profession.

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Property Dealings Gains

Income earned from selling property, such as land or buildings, which can be subject to capital gains tax.

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Interest Income

Income earned from investments like bank deposits or bonds, usually subject to final withholding tax.

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Rent Income

Income received from leasing out property, like houses or apartments.

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Royalties Income

Income earned from the use of intellectual property, like books or music, often subject to final withholding tax.

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Dividends Income

Income received from owning shares in a company, typically subject to final withholding tax.

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What is compensation income?

Income earned by employed individuals from their jobs, such as salaries, wages, bonuses, and commissions.

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How is compensation income taxed?

Employers withhold income tax from employees' monthly gross income and remit it to the BIR.

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What is the personal exemption?

An amount of income that individual taxpayers are not required to pay taxes on, currently P50,000 in the Philippines.

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What are dependent exemptions?

Additional exemptions of P25,000 are granted for each qualified dependent, up to four dependents.

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What is substituted filing?

A simplified way for employees to file their income tax returns by using BIR Form 2316, which is issued by their employer.

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What is progressive tax system?

A system where the tax rate increases as the tax base (income) increases, meaning higher earners pay a larger percentage of their income in taxes.

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What is a sole proprietorship?

A business structure where the owner is the sole person responsible for the business and its profits/losses.

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How do sole proprietors file taxes?

Sole proprietors file their income tax returns using BIR Form 1701 as individual taxpayers.

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Study Notes

Bank Reconciliation

  • Bank reconciliation is matching a company's accounting records to a bank statement.
  • It's used to find changes and differences between the two, and update the records accordingly.
  • Two main parts of a bank statement are account summary, which presents opening and closing balances, along with deposits and withdrawals. The other part is the transaction detail, listing all transactions.
  • Bank Balance: The ending balance on the bank statement, often called balance per bank statement.
  • Book Balance/Cash Ledger: The company's internal record of the bank account balance, also known as balance per books.
  • Deposit in Transit: Deposits made by a company but not yet processed by the bank.
  • Outstanding Checks: Checks written by the company but not yet cashed by the recipient.
  • Insufficient Funds (NSF) Check: A check returned by the bank because of insufficient funds.
  • Book Balance: The company's internal record of the bank account balance.
  • Interest Earned: Interest added to the bank statement, which should be added to the book balance.
  • Services Charge: Fees charged by a bank for services (e.g. maintenance of the checking account).
  • Adjustment to Deposits: Adjustments related to errors in recording deposits or insufficient funds checks.

Tax Computation (TRAIN Law)

  • TRAIN (Tax Reform for Acceleration and Inclusion) aims to simplify, make fairer, and improve the Philippine tax system.
  • It seeks to fund more infrastructure and social services to reduce poverty and inequality.
  • Under TRAIN, the first PHP 250,000 of annual income is tax-exempt.
  • High earners will be taxed at a higher rate (35%).
  • Bonuses and benefits up to PHP 90,000 are exempt from income tax.
  • Personal and dependent exemptions are combined and increased; further, de minimis benefits are exempt.
  • Fringe benefits incur a 35% tax rate.
  • Widows/widowers use the single option on the tax calculator.
  • Overtime, absences, leaves, and de minimis benefits are excluded from the computation.
  • If unemployed, input 0 in the calculator.

Revised Withholding Income Tax Table

  • The table provides tax rates for different income levels effective from 2018-2022.
  • Taxable income is calculated after deducting exemptions.
  • Tax rates are progressive, increasing with income.
  • Income tax is calculated using a tax calculator.

Income Tax Computations and Principles

  • Income tax is a tax on net income or total income in a taxable year.
  • Citizens living in the Philippines are taxed on all income (both locally and globally earned).
  • Non-resident citizens are taxed only on income earned within the Philippines.
  • Foreigners living in the Philippines are taxed on income earned within the Philippines.
  • Foreign corporations are taxed only on income derived from sources within the Philippines.
  • Domestic corporations are taxed on all income derived from sources inside and outside the Philippines.
  • The National Internal Revenue Code (NIRC) of 1997 outlines sources of gross income, including compensation, business income, gains from property, interest, rents, royalties, etc.

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FABM 2 2nd Quarter Exam - Bank Reconciliation - PDF

Description

This quiz covers the fundamentals of bank reconciliation, focusing on matching a company's accounting records with bank statements. Key concepts include bank balance, book balance, deposits in transit, and outstanding checks. Test your knowledge of these essential accounting practices!

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