GENERAL JOURNAL VS SPECIAL JOURNAL

What is JOURNAL?

- It is a permanent chronological record of business transaction

- A book wherein lahat ng business transaction is recorded in chronological order
- A book of the business wherein all the transactions are being recorded in GENERAL JOURNAL

What is JOURNAL ENTRY?

- It shows all the effects of transaction as expressed in terms of debit and credit and may include
an explanation of the transaction.
- Details to be recorded in a journal book in an event or transaction
- Ang gagawan lang ng journal entry ay may EFFECTS SA ASSET, LIABILITY AND EQUITY

What is GENERAL JOURNAL?

- It is the basic form of journal.

- All business transactions are recorded.
- Advisable for minimal transaction only.

Minimal transactions are advisable kasi ALL OF THE BUSINESS TRANSACTIONS are recorded in a general
journal and this can result to bulk transactions. To prevent so, general journals are advisable for business
who have less transactions.

It contains the following:

1. Date Column
2. Debit Column
3. Credit Column
4. Description Column
5. Posting reference Column

Ref saan mong

finoward na
ledger
 What is SPECIAL JOURNALS?

- These journals are used to record specific types of high-volume information.

If bulky yung transactions it is advisable ang special journal

Special journal have different types, dapat di makikita ang same transaction sa dalawang journal (Ang
makikita sa special journal a ay dapat di makikita sa b)

You have to segregate at di nakikita sa iba yung mga transactions kaya inaayos

Types of special journals:

• Cash receipt journal – where all cash collections/cash sales are being recorded.
• Sales journal – where all sales on account being recorded.
• Purchases journal – where all purchases on account is being recorded.
• Cash disbursement journal – where all cash purchases/payments being recorded.

JOURNALIZING

- It is the process of entering data in the journal.

SIMPLE AND COMPOUND ENTRIES

Simple Journal Entry – entries involve two accounts only, one debit and one credit.

Example:

Jan 01 – Anna Marie invested 200,000 for her laundry business.

Entry:

DATE ACCOUNT TITLES AND EXPLANATION REF DEBIT CREDIT

Jan 01 CASH 200,000
CAPITAL – ANNA M. 200,000
To record cash capital

Compound Journal Entry – entries involve more than two accounts, or requires two or more accounts.

Examples:

Jan 01 – Anna Marie invested 200,000 cash and 100,000 worth of lot for her laundry business.

Entry:

DATE ACCOUNT TITLES AND EXPLANATION REF DEBIT CREDIT

Jan 01 CASH 200,000

LOT 100,000
CAPITAL – ANNA M. 300,000

To record invested capital

ACCOUNTING BOOKS-JOURNAL AND LEDGER

Content Standards
The learners demonstrate an understanding of debit and credit, journal entries to record
basic business transaction and using t-accounts, and posting to general ledger.

Performance Standards
The learners shall be able to prepare journal entries for basic business transactions; solve
exercises and problems that require using the t-account.

Learning Competencies
The learners shall be able to
1. Differentiate the journal from the general ledger (ABM_FABM12-IIa-b-1)
2. Determine the normal balance of an account (ABM_FABM12-IIa-b-2)
3. Prepare journal entries to record basic business transaction
(ABM_FABM12-IIa-b-3)
4. Determine balances of accounts using the t-account.
(ABM_FABM12-IIab-4)

Specific Learning Outcomes

At the end of this lesson, the learners will be able to:
1. Learn the use of journal and general ledger.
2. Prepare journal entries to record business transactions
3. Post the transaction in the general ledger
4. Determine the normal balances of the accounts using the t-account

The GENERAL JOURNAL and SPECIAL JOURNAL

The process of recording a transaction is called journalizing the transactions.
General Journal – the simplest type of journal we record all transactions.
Special Journal is designed to record a particular type of transaction efficiently and
quickly.
Example of special journal and their use are the following:
Cash Receipt Journal- is used to record all cash that had been received.

Cash Disbursement Journal- is used to record all cash expenses

Sales Journal- is used to record all sales on credit (on account)

Purchase Journal- is used to record all purchases of inventory on credit (or on account)
THE IMPORTANCE OF USING A JOURNAL

The journal shows all information concerning a particular transaction.

The journal provides a chronological record of all the financial event in the business over time. If we
want to know about a certain transactions of years or months back, we can trace the said transaction
as long as we have the date of the said transaction. The entries in the journal are arranged by date that
makes it necessary to locate a particular event.

GENERAL LEDGER

- Often called a T-Account because its resemblance to the letter T. A T-Account is simplified form
of general ledger. A sample of a T-account is shown below:

Left side or Debit side Right side or Credit side

In order to determine the ending balance of each account using the “T account”, the beginning
balance is plot in the appropriate debit or credit side, then total debits and credits are then determined.

If the account has a beginning balance on the debit side, all the debits during the period is added to
the beginning then all the credits are deducted. There is a debit balance of the account if the sum of the
beginning balance and the total debits exceeds the total credits.
The normal balances of these accounts are listed below:

a. Asset Accounts – Debit Balance; however the normal balance of a contra asset account is credit.
In the above chart, the contra asset accounts are:

• Allowance for Bad Debts,

• Accumulated Depreciation (Accum. Deprn.) – Store Equipment
• Accum. Deprn. – Off Eqpt (Office Equipment)
• Accum. Deprn – Trans Eqpt (Transporation Equipment)
• Accum. Deprn – Building

b. Liability Accounts – Credit Balance

c. Equity Accounts – Owner’s, Capital account has a normal balance on the credit side while the
Owner’s, Withdrawal account has a normal balance on the debit side.

d. Income – Credit Balance

e. Expense – Debit Balance
CHARTS OF ACCOUNTS

ACCOUNT CODE CLASSIFICATION ACCOUNT TITLE

1000 Asset Cash
1200 Asset Accounts Receivable
1201 Asset Allowance for Bad Debts
2201 Liabilities Salaries Payable
3000 Equity Owner’s, Capital
4000 Income Service Revenue
6220 Expenses Communication Expense

The chart of accounts is a complete listings of the account titles and account numbers of all the
accounts in the ledger. The chart of account is comparable to a table of contents.

SIMPLE JOURNAL ENTRY AND COMPOUND JOURNAL ENTRY

An entry the involved two accounts only, one debit and one credit is called a SIMPLE JOURNAL ENTRY

Some transactions, however, require more than two accounts in journalizing. An entry that that requires
three or more accounts is a COMPOUND ENTRY.

example:

Ariel Garden Supply Store acquire a land for P800,000 and Building 300,000. Ariel paid P300,000 cash
and issued a promissory note for the balance.

Entry:

Building – 300,000

Land – 800,000

Cash – 300,000

Notes Payable – 800,000

ACTIVITY: Let’s Try It!

Transactions during February 2016 are:

On February 1, 2016, the following beginning balances were correctly determined from previous
accounting period of Vincent Repair Shop:

Cash 25,000.00 Debit Balance

Accounts Receivable 100,000.00 Debit Balance

Office Equipment 50,000.00 Debit Balance

Accounts Payable 35,000.00 Credit Balance

Vincente, Capital 140,000.00

Feb 2 Rendered service to X Company for Php 15,000 and received cash payment on same date.

Feb 4 Paid Rental for the month amounting to Php 3,500.00

Feb 5 Collected accounts receivable from Y Company amounting to Php 30,000. The amount was
included in the beginning balance as of February 1, 2016 stated above.

Feb 10 Rendered service to Jose on account, Php 18,000 to be collected on March 2016.

Feb 15 Paid salaries of staff, Php 7,000

Feb 18 Paid accounts payable to Marine Company amounting to Php 5,000. The amount was included
in the beginning balance of February 1, 2016 stated above

Feb 20 Rendered service to Maria Company for Php 23,000, cash

 POSTING
CASH

Beg. Bal 2/2 25,000 2/4 3,500

2/5 15,000 2/15 7,000

2/20 30,000 2/18 5,000
Total 23,000 Total 15,500
93,000

Ending B 77,500

ACCOUNTS RECEIVABLE

Beg. Bal 2/10 100,000 2/5 10,000

Total 18,000 Total 10,000

118,000

Ending B 88,000
 VICENTE, CAPITAL

Beg. Bal 140,000

Ending B 140,000

SERVICE REVENUE

2/2 15,000
2/10 18,000
2/23 23,000

Ending B 56,000

RENT EXPENSE

2/4 3,500

Total 3,500

SALARIES EXPENSE

2/15 7,000

Total 7,000

Posting is recording in the ledger the information contained in the journal.

After posting, we can now proceed to prepare trial balance, A trial balance is a list of the
accounts with debit or credit balances to determine that debit equals credit in the
recording process. The trial balance of Vicente Repair Shop appears as follows:

Instructions:

a. Journalize the above transactions

b. Post to ledger using the T-account format

c. Prepare the unadjusted trial balance, as of April 30, 2016

BASIC DOCUMENTS AND TRANSACTIONS RELATED TO BANK DEPOSITS

THE TYPES OF BANK ACCOUNTS NORMALLY MAINTAINED BY A BUSINESS:

a. Savings Accounts
b. Checking or Current Accounts.

Kahit walang business ay pwede magkaroon ng bank account and dito papasok ang SAVINGS
ACCOUNT.

A. SAVINGS ACCOUNTS
• These are intended to provide an incentive for the depositor to save money.

The INCENTIVE is INTEREST.

• The depositor can make deposits and withdrawals using the form provided by the bank.
• Bank usually pay an interest rate that is higher than a checking account or a current account.
• Some savings accounts have a passbook, in which transactions are logged in a small booklet
that the depositor keep.

PASSBOOK – contains bank transaction such as withdrawals, deposit, other charges and transaction
balance.

• Some savings accounts charge a fee if the balance falls below a specified medium

Savings accounts can either be ATM or PASSBOOK. But it is also allowed to HAVE BOTH ATM and
PASSBOOK

o ATM uses ATM MACHINES

o PASSBOOK are OVER THE COUNTER (OTC)

In a savings account is haves SLIPS such as DEPOSIT SLIP or WITHDRAWAL SLIP.

Sa saving accounts may limit, may maximum deposit in a day or daily deposits.

Daily Withdrawals or maximum withdrawals of the day this is the limit or may maximum na withdrawals.
Kapag kelangan na mag exceed may ififill na slips and may penalty/fee na kasama or penalty charge.
(madalas 200 pesos)

B. CHECKING OR CURRENT ACCOUNTS

• Money held under a checking account can be withdrawn through issuance of a check.

Withdrawals are only through CHECK ISSUANCE and not withdrawal slips. It is important to have your
CHECKBOOK with you all the time.

• Banks usually allows numerous withdrawals and unlimited deposit under this type of account.
• The interest rate for checking account is usually lower as compared to a savings account.

Ang pagkakaroon ng interest usually depends on the bank but if it has an interest, it is lower compared
to savings account. In bank like metro bank and BDO do not have any interest.

• The account holder or depositor of a checking account is normally provided at the end of the
month a bank statement showing all the deposit made, checks paid by the bank, and the
balance of the account.
• The depositor is given easy access to the funds as compared to a savings account.
In savings account, the passbook contains the transactions. While in checking accounts, there is a BANK
STATEMENT AT THE END OF THE MONTH which contains the deposit made, checks paid by the bank, and
the balance of the account.

PREPARATION OF BANK DEPOSIT AND WITHDRAWAL SLIPS

A withdrawal slip and deposit slip are written orders to the bank. These slips are used to take out money
or to put in money to the depositor account.

WITHDRAWAL SLIP

Requires information in the withdrawal slip are:

Account Name – the name of the depositor

Account Number – the unique identifier given by the bank for every account maintained

Date of the withdrawal

Type of account – savings or current

Currency

Amount to be withdrawn – the amount that the depositor wishes to withdraw from his account.

Signature of the depositor – this is the most important part in the withdrawal slip. The signature is a proof
that the depositor is authorizing the bank to get money from his account.

WHEN you put some money into your bank account, then it is called Depositing the money. When you
deposit money, the balance in your bank account will increase. On the other hand, withdrawal of
money is taking out money from your bank account. It can be done manually or electronically.
500 dollars min para sa dollar (25,000 pesos)

200,000 sa Vietnam ay 50 pesos

Requires signature and lagay na cash breakdown

DEPOSIT SLIP

The bank provides deposit slip that the depositor will fill up every time the depositor will put in money to
his account. The usually required information in a deposit slip are:

• Account Name – this is the complete name of the depositor that is reflected in the records of the
bank. If it has a passbook, the account name is indicated on first page inside the passbook.
• Account Number – this is a unique identifier of the account maintained by the depositor
• Date of Deposit
• Type of Account
• Currency
• Amount in words and in figures

Must put account number, The name, Then signature. Pwede rin secretary or other person pero pirma
nila ilalagay
Depositing cash needs DENOMINATION – ilang pieces per money (ilang 100 pesos, pwede rin barya)

Deposit slip for cash and check sa ibang banks like BDO. But sa metro bank iisa lang

IDENTIFY AND PREPARE CHECK (CHEQUE)

A check is a document that orders a bank to pay a specific amount of money from a person’s account
to the person in whose name the check has been issued.

The following are the parties involved in a transaction that uses check as medium of exchange:

• Drawer, the person or entity who makes the check

• Payee, the recipient of the money
• Drawee, the bank or other financial institution where the cheque can be presented for a payment

Dun sa branch na ilalagay sa taas na deposit slip

A check is similar to NOTE which COMMANDS, PAY, GIVES OTHER PEOPLE MONEY.

In issuing a check dapat make sure na may pera ka. Dapat alam mo balance dahil baka kumulang
pera mo and receive penalty

IDENTIFY AND UNDERSTAND THE CONTENTS OF A BANK STATEMENT

At the end of every month, the bank furnishes a statement to the depositor showing the movement of
the account. It contains all the withdrawals, deposits, and balance of your account after every
transaction. It may also indicate bank charges that were deducted by the bank automatically. Also,
interest earned by the account is likewise reflected.
Account holder – may ari ng account na nasa left side

Pwede mag ka negative dahil may binabawas si bank charges

NSF – no sufficient funds. I have 5,000 na lang (checking and maintaining balance), nakapag issue na
check na worth 3,000 pesos, after 1 week kelangan ideposit yung checking account naging worth
negative (-) 5,000 ang kulang.

Keep in mind: kapag may CURRENT ACCOUNT kailangan may MAINTANING.

SAMPLE OF BANK STATEMENT

The date column indicates the date the transaction was made.

The check number indicated the details of the check paid by the bank.

The transaction code is normally a bank code for the transactions.

The Debit column represents all charges or deduction made by the bank to your account.

The Credit column represents the deposit or additions to your account that was made by the bank.

The Balance column is the running balance after considering the effect of the transaction to your
account.
Samples of Debit transaction

• Bank service charge – monthly fee charged by the bank for its services (Ex. Cost of printing
checks writing funds to other locations and other fees)
• NFS (Not Sufficient Fund) – Banks also use a debit memorandum when a deposited check from a
customer “bounces” because of insufficient funds. Nowadays bank refer to this as DAIF (Drawn
Against Insufficient Funds) or DAUD (Drawn Against Uncleared Deposits)

Sample of Credit transactions

• Collection of cash proceeds from notes receivables.

• Interest income earned by the deposit.

As part of control, the bank statement received from the bank is compared with the accounting records
of the business. This process is called bank reconciliation. Bank reconciliation will be discussed in the
succeeding chapters.

Together with the bank statements, the banks will include the copies of checks cleared or paid by the
bank for that particular month.

Big time clients with companies does not provide cash, nagbibigay ng notes receivable sa bank na
marereceive mo

Kailangan compare ang account record sa bank statement. Kasi ang accountants may type of
graphical error, and banks are 100% correct. This is called BANK RECONCILIATION.

ACTIVITY. MULTIPLE CHOICE QUEZONS (Encircle the best answer)

1. It indicates the name of the bank and its branch and the type of account whether current or
savings.
a. deposit slip
b. signature card
c. depositor's bank account
d. withdrawal slip

2. A basic type of deposit account that can be withdrawn anytime the depositor decides to is called
_________.
a. checking account
b. timed deposit account
c. savings account
d. none of the above

3. This can be withdrawn through check

a. checking account
b. timed deposit account
c. savings account
 d. none of the above

4. It requires higher initial deposits and maintaining balance to earn interest is called ______.
a. checking account
b. timed deposit account
c. savings account
d. none of the above

5. It is an advanced technology service offered by the bank wherein deposits can be made to the
cash-accept-machine which counts the cash and credits it to the deposit account on real time to
eliminate bank charges for inter-branch deposits.
a. check deposit
b. on-site electronic deposit
c. cash deposit
d. over-the-counter deposit

6. A type of check which may be used for setting the needed amount and two signatories will have to
sign it is called ________.
a. commercial check
b. personal check
c. postdated check
d. returned check

7. A local body that gives specifications on information that must be contained in a check is called
_____.
a. House of representatives
b. Commission on Audit
c. Philippine Institute of Certified Public Accountants
d. Philippine Clearing House Corporation

8. The two diagonal lines at the top left corner of the check is written so that the amount indicated will
be deposited to the account of the rightful payee, which means ____________
a. "for withdrawals only"
b. "for client's only"
c. "for deposits only"
d. "for supplier's account only"

9. It is a bank instrument used to put in effect the payment of the issuer to a payee is called ________.
a. bill of exchange
b. check
c. passbook
d. ATM card
10. It is issued by the bank to depositor with only one signatory is called ________.
a. ATM card
b. commercial check
c. Passbook
d. personal check

11. It is a check issued with two diagonal lines crossed at its top edge corner.
a. crossed check
b. returned check
c. post-dated check
d. commercial check

12. It is issued by the bank to the depositor which can be used to withdraw cash anytime.
a. ATM Card
b. passbook
c. personal check
d. withdrawal slip

13. the number a bank gives to an individual account

a. phone number
b. account number
c. routing number
14. A slip of paper kept by the bank to show how much money you put into your account
a. deposit slip
b. withdrawal slip
c. receipt
15. term used to indicate that the writer of the check did not have enough money to cover the check
a. withdrawal
b. insufficient funds

16. borrowed money that must be repaid with interest

a. loan
b. credit card
c. advance

17. a bank account that earns interest

a. checking account
b. loan
c. savings account

18. A booklet given by the bank to the depositor to record deposits, withdrawals, and interest earned on
a savings account
a. passbook
b. check book
 c. bank book

19. It is a check processed through the PCHC but dishonored by the drawee bank because the
account's balance cannot cover the check.
a. DAIF Check
b. NSF Check
c. Crossed check
d. Personal check

20. A way in which the discrepancy between the record of the depositor and the bank will be resolved.

a. adjusting entries
b. bank reconciliation
c. auditing
d. reposting

BANK RECONCILIATION STATEMENT

- Is prepared by an entity to reconcile the cash-in-bank account balance in the entity’s book
versus the balance as reported by the bank in the bank statement

- The bank statement is compared to the accounting records of a business

The importance of Bank Reconciliations are as follows:

❖ Preparation of bank reconciliation helps in the identification of errors in the accounting records of
the company or the bank.

RECONCILIATION – checking the books and the bank statements.

In the Statement of Financial Position, there is CASH in the current assets, the amount of the cash
inputted in SFP must be equal on the bank statement of the ending balance. The amount of the ending
balance in the Bank reconciliation statement is written in SFP.

Reason bakit di balance:

- SAAN NAG KULANG

- SAAN NAGSOBRA
- SAAN NAGKAMALI

Bank statements are PERFECT, the books are not. Check the errors.

LOOK AT THE ERRONEOUS ON BOTH BOOKS AND BANK STATEMENTS

❖ Cash is the most vulnerable asset of an entity. Bank reconciliations provide the necessary control
mechanism to help protect the valuable resources through uncovering irregularities such as
unauthorized bank withdrawals. However, in order for the control process to work effectively. It is
necessary to segregate the duties of persons responsible for accounting and authorizing of bank
transactions and those responsible for preparing and monitoring bank reconciliation statements.
Through the BANK STATEMENT, we are able to see or uncover irregularities such as unauthorized bank
withdrawals, sa book may collection na 100,000 then sa bank statement wala.

This allows us to see if there are ERRONEOUS, DISCREPANCIES, and FRAUDS

❖ If the bank balance appearing in the accounting records can be confirmed to be correct by
comparing it with the bank statement balance. It provides added comfort that the bank
transactions have been recorded correctly in the company records.

❖ Monthly preparation of bank reconciliation assists in the regular monitoring of cash flows of a
business.

Importance of auditing and bank reconciliation – makikita yung pang dadaya

COMMON RECONCILING ITEMS:

Deposits in transit

- are amounts already received and recorded by the company but are not yet recorded by the
bank.
- A deposit in transit is on the company’s books, but it isn’t on the bank statement.

Outstanding checks

- are checks that have been written and recorded in the company’s Cash account but have not
yet cleared the bank account or presented to the bank by the payee.

SCENARIO: June 30, Nagbigay ng check kay Driz amounting to 5,000. Nabawasan yung cash sa Books.
However, nung dumating yung bank statement ay 40,000 parin ang pera na dapat 35,000 na lang.

Bank errors

- 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.

Minimal at minsan lang magkamali ang banks because most of the time SYSTEM ang nagkakamali.
BANKS ARE TRUSTED INSITUTIONS.

SCENARIOS:

The teller ay nagkamali

Imbis na didiposit kay driz nadiposit kay dasha

Na omit na amount 100,000 ang deposit na record ay 10,000

Bank service charges

- Are fees deducted from the bank statement for the bank’s processing of the checking account
activity.
• Accepting deposits
• Posting checks
• Mailing the bank statement
• A stop payment order
SCENARIOS:

Accepting deposits – charges ng bank at may limit lang, ito yung penalty

Posting checks – contactless like avon

Mailing the bank statement – free monthly pero may nawalang bank statement ay nag request ulit sa
bank. The request has payment. Mostly 200 pesos

Stop payment order – hal may bayad para kay royo at para kay dasha dapat yung bayad. Nagkamali
ng bayad this is the fastest way para di madeposit ni royo dahil nagkamali. Can be mali na assign or
Nawala yung check

Kung ano meron sa book ay dapat nasa bank statement. Kung ano meron sa bank statement ay
dapat nasa book. WHATEVER ITEMS YOU HAVE SHOULD BE REFLECTED ON BOTH.

Kapag si bank iaadjust sa book -

Kapag ang book iaadjust sa book

NSF check

- Is a check that was not honored by the bank of the person or company writing the check
because that amount did not have sufficient balance.
- NSF is the acronym for NOT SUFFICIENT FUNDS.

Bounce check to
NSF. This is added
sa book na bank
expense

THE BANK RECONCILIATIN PROCESS

STEP 1: Adjusting the STEP 2: Adjusting the STEP 3: Comparing the

Balance per Bank Balance per Books Adjusted Balances

1. Banko iaadjust. Kung ano nasa libro na wala sa bank iaayos mo

2. Kubg ano nasa banko mo add sa book
3. Last compare yung balance
EXAMPLE

AS PER BANK AS PER BOOKS

Balance per bank, August 31, 2020 100 Balance per book, August 31, 2021 200

Adjustments add deposit in transit Adjustment deduct bank service charges

Deduct outstanding checks Deduct NSF checks and Fees

Deduct Check printing charges

Add or Deduct bank errors Add interest earned

Adjusted /Corrected bank balance Add notes receivable received by the bank

Add/Deduct errors

Adjusted/corrected book balance

ACTIVITY 2 For the month of May 2016 Tope issued the following checks as recorded in its Cash
Disbursement Journal

Check Date Check No Payee Amount

5/2/2016 1256 Jane 2,000
5/10/2016 1257 May 300
5/15/2016 1258 Nicole 4,500
5/18/2016 1259 Kathy 8,700
5/30/2016 1260 Perry 1,200
As per the bank statement received by Tope, the following checks were presented and paid by the
bank:

Check No Payee Amount

1256 Jane 2,000
1259 Kathy 8,700
1260 Perry 1,200

Instruction: Identify checks outstanding as of end of May 2016

AS PER BANK: Outstanding checks must be DEDUCTED

May 300 + Nicole 4,500 = 4,800

In the bank-to-book method, OUTSTANDING CHECK must be DEDUCTED. Therefore, 4,800 will be
deducted

Answer: Check 1257 issued to May for P300 and Check 1258 issued to Nicole for P4,500
ACTIVITY 3 the cash receipts journal of Kelogs Merchandising reflected the following collection for the
month of May 2016.

Official Receipt Date Official Receipt No. Customer Amount

5/2/2016 4171 Carl 4,000
5/8/2016 4172 Mae 2,000
5/9/2016 4173 Cate 8,900
5/18/2016 4174 Kat 7,800
5/26/2016 4175 Simon 3,200

It is the policy of the company to deposit collection within the following day from the date of
collection. The bank statement for April 2016 revealed following deposits made:

Deposit Date details Amount

05.03.2016 cod 4,000
05.10.2016 cod 8,900
05.26.2016 loc 7,800

Compute for the deposit in transit or undeposited collection as of end of May 2016

Recorded in the book is the amount 25,900

2,000 + 3,200 = 5,200 ang deposit in transit ay inadd sa bank

INCOME AND BUSINESS TAXATION

Content Standard

The learner demonstrate an understanding of sound principles of taxation, its purpose, and preparation
of forms and payment of taxes

Performance Standard

The learners shall be able to accomplish the BIR (Bureau of Internal Revenue) forms

Learning Competencies

The learners:

1. Define income and business taxation and its principles and processes. (ABM_FABM12-IIh-j-15)

2. Explain the principles and purposes of taxation. (ABM_FABM12-IIh-j-19)

3. Prepare the list of sources of gross income from compensation and gross income from business, and
the corresponding personal and additional deductions. (ABM_FABM12-IIh-j-16)

4. Distinguish individual from business taxation. (ABM_FABM12-IIh-j-20)

5. Explain the procedure in the computation of gross taxable income and tax due. (ABM_FABM12-IIh-j-
17)

6. Prepare the BIR forms. (ABM_FABM12-IIh-j-18)

Specific Learning Outcome

At the end of this lesson, the learners will submit completed BIR tax form for a sample taxpayer.

Principles of Taxation

• Governing tax law in the Philippines is the National Internal Revenue Code of 1997. The Bureau of
Internal Revenue (BIR) is the primary implementing agency of this law.

The government agency na nagcocollect ng taxes sa citizens ay ang BIR.

Tax mostly nakukuha sa: compensation sa sahod or bayad sayo sa prinovide mong service or bayad sa
pagprovide or sell ng goods.

• Taxation is the process by which the government collects revenue in order to pay for its expenses.

• Income tax is defined as the tax on the net income or the entire income realized in one taxable year.

Who are required to pay income tax in the Philippines? (Section 23 of the National Internal Revenue
Code [NIRC] of 1997)

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

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

Di sa Philippines nakatira, but a filipino citizen

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

OFW are tax exempt but pag may business or nakukuha na income ay need magbayad ng tax

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

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

Kapag lahat ng stockholders, member of the board, and staff ay 100% Filipino

Foreign corporation – may foreigners na stockholder

In business sa Philippines, 60% Filipino and 40% foreigner

• A foreign corporation is taxable only on the income derived inside the Philippines.

List of sources of gross income: (NIRC 1997 Chapter 6 Section 32 A)

• Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages,
commissions, and similar items;

• Gross income derived from the conduct of trade or business or the exercise of a profession;

Ex Repair shop, accounting firm, nursery school, construction firm

• Gains derived from dealings in property; (Note: subject to 6% capital gains tax for individuals and
for corporation if land and building is not used in business)

• Interests; (Note: generally subject to 20% final withholding tax)

• Rents;

Such as papauba ka not only about house or land but also books or anything.

• Royalties; (Note: generally subject to 20% final withholding tax,10% if from books and literary works)

Nakadiscover robot and that robot produced and sell in the market dahil ginamit ang ITO

Books, an author produced a book and pinublish meron na royalty fee.

• Dividends; (Note: generally subject to 10% final withholding tax for individuals, tax exempt for
corporation)

50,000 ang kita, babawasan muna ng 10 percent bago pa ipaghati and kailnagn pa magbayad as
individual

• Annuities;

Mga kinita sa investment

• Prizes and winnings; (Note: generally subject to 20% final withholding tax, except those that are tax
exempt based on specific criteria in the law)
Ex, kay Pacquiao who won millions na need bayaran ng tax mahuhuli sa NIRC of 1997

• Pensions; and
• Partner's distributive share from the net income of the general professional partnership

PARTNERSHIP IS TAX EXEMPT, however paghahatian ang income.

Compensation Income

• Employed individuals that earn compensation income pay their income taxes monthly. Employers
withhold the income tax of their employees from their monthly gross income and remit these sums to the
BIR.

Before, pagsinabi personal exemption in compute of compensation income tax pag 4 anak mo or more
ay 100,000 lang ang tax exempt 25,000 per child.

Because of TRAIN LAW, personal exemption is 90,000 regardless number of children at di na 50,000.
Walanag babayaran pag minimum lang sahod. NCR 503750 but more than taxable ka.

• Philippine individual income tax is progressive. The tax rate increases as the tax base increases which
means that tax payers with more capacity to pay will pay more taxes.

• All individual taxpayers are granted a personal exemption of P 90,000. Regardless the number of
children.

Withholding income tax for employees:

Withholding (nagbabawas)

Kapag ikaw Negosyo magwiwithold sayo ay SUPPLIER

- Employers are required by law to withhold income tax dues from their employees’ salary.

- It is implemented because employees might not have sufficient cash to pay for their income tax dues if
aggregated to a one time annual payment.

- The withholding tax deduction is computed based on the employee’s gross compensation (net of
mandatory contributions to SSS or GSIS, Philhealth and Pag-ibig Fund), tax status, and timing of
Compensation payments and using the published BIR withholding tax table.

Ibabawas sa gross income ang mga contribution BIR form 1700 form

Income tax is computed at the end of the year based on all compensation income derived during the
year.

- Taxable income is computed after deducting personal and additional exemptions.

- Applicable tax rate is applied on the taxable income to get the tax due.

- The total income tax withheld by the employer is deducted from the tax due to get remaining tax
liability by the employee.

Form 2316 is a statement issued by the employer and signed by the employee but not filed with the BIR.
This is referred to as substituted filing
Kapag ikaw ay compensation income lang yung bases ng tax mo ay BIR form 1700

Babayad na tax through business is 1701 form

Pag may Negosyo and sahod/compensation and business ang form na ififill up 1701 for. On or before
April 15 on the following year. Jan to December 2021 magbabayad sa 2022 may 105 days to prepare
this is calendar. Pag fiscal add ulet ng 105 days.

• Taxpayers who derive their income solely from compensation are required to file BIR Form 1700 as their
income tax returns. However, to give relief to these taxpayers, the employee may present BIR Form 2316
as their income tax return. BIR Form 2316 is a statement issued by the employer and signed by the
employee but not filed with the BIR. This is referred to as substituted filing

Two approaches for the computation of income tax for the business:

- Itemized deduction. Use the itemized expenses in the income statement. The business should have a
complete set of accounting books and supporting receipts for the deductions that were itemized on the
tax form.

Gross income less expenses (THROUGH BUSINESS ONLY) must require to identify expenses.

- Optional standard deduction scheme. Deductions are up to a maximum of 40% of “gross receipts”.
“Gross receipts” is equal to net sales plus other taxable income. This means that the business taxable
income is equivalent to 60% of gross receipts.

Magkano expenses wala na pake BIR basta 8% pero before 40% ng gross receipt.

Ex 100,000 sales yung 60,000 nun ay kunin 8%

60% taxable income 8% tax due

Sa itemized pag na proof na mas Malaki expenses pwede magkaroon na walang tax

Pero sa optional walang magagawa

• “Mixed Income Earner” is a compensation-earner who at the same time is engaged in business or
practice of profession. A taxpayer deriving mixed income will also use BIR Form 1701.

Taxable Income and Tax Due

A. Compensation Income:

Gross compensation (salary and other bonuses)

Less: Statutory contributions (SSS or GSIS, PhilHealth and Pag-ibig Fund)
Gross compensation, net of statutory payments
Less: 13th month pay and other bonuses that are exempted from income tax (amount shall not exceed
to 90,000 )
= Net taxable compensation income
 B. Business Income:

Total revenues (Sales, Professional Fee, etc)

Less: Total expenses (Cost of Goods Sold, Operating Expenses)
Taxable income from business
Less: Personal Exemption of 90,000.00 only
=Net taxable income

We will compute our taxes base from the

updated tax table.

SAMPE COMPUTATION FOR INCOME TAX- FOR COMPENSATION

ILLUSTRATION A. Jimmy was employed to SMC Corporation last 2019. His annual salary has a total of
400,000 breakdown are as follows:

Basic pay- 360,000

13th month pay-30,000

Allowances -10,000 SSS, Phic and HDMF

Deductions- 21,300

Solution:

Gross Compensation Income- 400,000

Less: Deductions

SSS, Phic and HDMF Contributions 21,300

Non-taxable Income: 13th month pay and Benefits 40,000

Net taxable income 288,700

Tax Due 7,740

Since 288,700 is the amount of taxable let’s check on the tax table.

On not over P250, 000 = tax due is ₱ 0.00

Above P250,000 to P400, 000 = tax due is 20% of excess over P250,000

So, 288,700 less 250,000 = 38,700 , then multiply it to 20 %

= 38,700 x .20

= 7,740 therefore, the 30,000 per month of income the tax due is 7,740.00

ILLUSTRATION B: Jimmy is a self-employed individual earning purely from business. He has an accounting
services. Below computation of his tax due;

Solution:

(1) Income Tax Due:

Gross Sales from Accounting Services P500,000.00

Less: Deductible Expense (200,000.00)

Taxable Income P300,000.00

Income Tax Due: P6,000.00

Computation:

On not over P250, 000 = tax due is ₱ 0.00

Above P250,000 to P400, 000 = tax due is 20% of excess over P250,000

So, 300,000 less 250,000 = 50,000, then multiply it to 20 %

= 50,000 x .20

Tax due = 6,000

ACTIVITY: Ms. Alona is employed in CSO Corporation. She received the SMW for 2018 in the total
amount of ₱175,000, inclusive of the 13th month pay and the 7,240 government contributions. In the
same year, she also has a laundry business with gross sales amounting to 500,000, the total expenses
incurred for the laundry shop is 300,000. Compute for the total income tax due of Miss Alona
 SINGLE

COMPENSATION

Gross salary 50,000.00

SSS 800.00
Philhealth 350.00
PAGIBIG 1,000.00 Bakit minultiply
Net payable 47,850.00
sa 12?
12.00
Annual 574,200.00
Less:
Personal exemption 90,000.00
taxable 484,200.00

COMPENSATION

Gross salary 50,000.00

SSS 800.00
Philhealth 350.00
PAGIBIG 1,000.00
Net payable 47,850.00
12.00
Annual 574,200.00
Less:
Base tawag Personal exemption 90,000.00
taxable 484,200.00
sa 400,000
400,000.00 30,000.00
84,200.00 21,050.00
Tax due 51,050.00
 BUSINESS

Gross Receipts 500,000.00

Less: Deductions 280,000.00
Net income 222,000.00
Personal Exemption 90,000.00
Taxable Income 130,000.00

No tax
BUSINESS
Gross Receipts 500,000.00

Less: Deductions 150,000.00

Net income 350,000.00

Personal Exemption 90,000.00

Taxable Income 260,000.00

250,000.00
10,000.00 2,000.00

Excess sa 250,000 times sa 20%

FOR BOTH

BUSINESS 500,000.00
Gross salary 600,000.00
Less: Deductions 150,000.00
SSS 9,600.00
Philhealth 4,200.00
Pag-ibig 12,000.00
Net Taxable Income 924,200.00

Annual 924,200.00
Less:
Personal exemption 90,000.00
Taxable income 834,200.00
800,000.00 130,000.00
34,200.00 10,260.00
140,260.00
51,050.00
89,210.00

X 12

NET TAXABLE INCOME = Business + gross salary – deductions – sss – philhealth - pagibig

Dahil employee nabawas na yan ng employeer

More examples:
https://www.scribd.com/embeds/401684385/content?start_page=1&view_mode=scroll&access_key=k
ey-fFexxf7r1bEfWu3HKwf