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</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</p> Signup and view all the answers

    What is the purpose of bank reconciliation?

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

    What does NSF stand for in banking terms?

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

    What types of compensation are included in gross income?

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

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

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

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

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

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

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

    Which income type is specifically exempt for corporations?

    <p>Dividends</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</p> Signup and view all the answers

    Which statement about royalties is accurate?

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

    What does the Bank to Book Method adjust?

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

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

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

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

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

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

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

    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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