FABM 2

Question 1

What is taxation?

Answer 1

Mandatory contribution imposed by the State to fund public services.

Taxation is a primary source of revenue for governments.

Question 2

Name the three inherent powers of the State.

Answer 2

• Eminent domain
• Police power
• Taxation

These powers are essential for the governance and regulation of society.

Question 3

What is fiscal adequacy?

Answer 3

The tax system must raise sufficient revenue to cover government spending.

This ensures that the government can meet its financial obligations.

Question 4

Define administrative feasibility.

Answer 4

Tax laws must be enforceable with the least inconvenience to taxpayers.

This principle aims to minimize compliance costs for taxpayers.

Question 5

What is theoretical justice in taxation?

Answer 5

Taxes should reflect ability to pay; similarly situated taxpayers treated equally.

This principle promotes fairness in the tax system.

Question 6

What is the de minimis rice subsidy non-taxable limit per month?

Answer 6

₱1,500 per month.

This limit applies to rice subsidies provided to employees.

Question 7

What is the 13th month + other benefits non-taxable threshold?

Answer 7

Up to ₱90,000; excess is taxable.

This threshold helps define the tax treatment of additional compensation.

Question 8

What is the VAT rate?

Answer 8

12%.

This is the standard rate for value-added tax in many jurisdictions.

Question 9

What is the typical percentage tax rate?

Answer 9

3%.

This rate is often applied to specific types of businesses.

Question 10

What is the resident citizen tax rule?

Answer 10

Taxed on worldwide income.

This rule applies to citizens regardless of where the income is earned.

Question 11

What is a deposit in transit?

Answer 11

Amount recorded by company but not yet credited by bank — add to bank balance.

This indicates a timing difference in accounting records.

Question 12

What are outstanding checks?

Answer 12

Issued by company but not yet presented — deduct from bank balance.

These checks reduce the available balance until cleared.

Question 13

What is a credit memo in banking?

Answer 13

Additions by bank (e.g., collection, interest) — add to book.

This reflects positive adjustments to the account.

Question 14

What is a debit memo in banking?

Answer 14

Deductions by bank (e.g., service charge, NSF, auto-debits) — deduct from book.

This reflects negative adjustments to the account.

Question 15

What happens with an NSF check?

Answer 15

Bank returns check; deduct from book (and record receivable).

NSF stands for ‘non-sufficient funds’.

Question 16

What is the purpose of the adjusted method?

Answer 16

Adjust both book and bank balances to arrive at same adjusted cash balance.

This method ensures accuracy in financial reporting.

Question 17

How to correct a book error where P2,000 recorded as P200?

Answer 17

Add P1,800 to book balance (book error — under-recorded deposit).

This correction ensures accurate financial records.

Question 18

What is the journal entry when the bank collects receivable for you?

Answer 18

Debit Bank; Credit Accounts Receivable.

This reflects the collection of funds on behalf of the company.

Question 19

What is tax evasion?

Answer 19

Illegal avoidance: hiding income or falsifying records.

This is a criminal offense with serious penalties.

Question 20

What is tax avoidance (legal)?

Answer 20

Using lawful methods and planning to minimize tax liability.

This is a legitimate strategy to reduce tax obligations.

Question 21

What is the graduated tax bracket rule (2023) for ₱400,001–₱800,000?

Answer 21

₱22,500 + 25% of excess over ₱400,000.

This rule defines how income tax is calculated within this range.

Question 22

How to treat SSS/PhilHealth/Pag-IBIG for taxable compensation?

Answer 22

Deduct contributions from gross compensation to get taxable income.

This ensures that only net income is taxed.

Question 23

Give an example of a non-taxable benefit (if within limits).

Answer 23

Rice subsidy up to ₱1,500/month, uniform up to ₱5,000/year.

These benefits are exempt from taxation if they meet specified criteria.

Question 24

What is a bank service charge entry?

Answer 24

Debit Service Expense; Credit Bank/Cash.

This reflects the cost of banking services.

Question 25

What does **'deposit in transit'** indicate about timing?

Answer 25

Company recorded deposit before bank’s cutoff — timing difference. ## Footnote This highlights discrepancies in timing between records.

Question 26

How to compute tax using **graduated table**?

Answer 26

Identify bracket → base amount + % of excess over bracket lower limit. ## Footnote This method ensures accurate tax calculations.

Question 27

If a firm opts for **8% gross sales tax**, who is eligible?

Answer 27

Self-employed/specific thresholds per module; can choose between OSS or schedule (confirm conditions). ## Footnote This option provides flexibility in tax reporting.

Question 28

What is the effect of **outstanding checks** on cash ratio?

Answer 28

Reduces effective cash; lowers current/quick ratios. ## Footnote This impacts liquidity ratios used in financial analysis.

Question 29

What is the penalty for **filing fraudulent return**?

Answer 29

Monetary fines and possible imprisonment. ## Footnote This serves as a deterrent against tax fraud.

Question 30

What is **auto-debit** in bank statements?

Answer 30

Bank deduction for automatic bill payment (debit memo). ## Footnote This simplifies payment processes for consumers.

Question 31

How long to retain **receipts/invoices**?

Answer 31

Typically 3 years (refer to module specifics). ## Footnote This is important for tax compliance and audits.

Question 32

What is a **book error**?

Answer 32

Mistake in company’s records (amounts recorded incorrectly) — adjust book. ## Footnote This requires correction to maintain accurate financial statements.

Question 33

How to treat **input VAT** for zero-rated sales?

Answer 33

Seller may still claim input VAT credits. ## Footnote This encourages businesses to engage in zero-rated transactions.

Question 34

What is the effect of a **bank error** that understates bank balance?

Answer 34

Add correction amount to bank balance. ## Footnote This ensures that bank records align with company records.

Question 35

When is **13th month pay** taxable?

Answer 35

Only the portion exceeding ₱90,000 (including excess de minimis). ## Footnote This defines the tax implications of additional compensation.

Question 36

What is **withholding tax on compensation**?

Answer 36

Withheld by employer as an advance creditable tax. ## Footnote This reduces the tax burden at year-end for employees.

Question 37

What is an **outstanding check**?

Answer 37

Issued but not yet cleared by bank. ## Footnote This affects the cash balance until the check is processed.

Question 38

What is a **card-type journal entry** for NSF check?

Answer 38

Debit Accounts Receivable; Credit Bank/Cash. ## Footnote This reflects the reversal of the transaction due to insufficient funds.

Question 39

Why prepare **bank reconciliation** monthly?

Answer 39

To detect errors, timing differences, fraud, and to update accounting records. ## Footnote Regular reconciliation is crucial for accurate financial management.

Question 40

What is **social listening** (in accounting context)?

Answer 40

Not applicable — ignore. ## Footnote This term is unrelated to accounting principles.