Accounting Period

● Accounting period is the name of time over which income is measured and reported.
- EXPLAINATION: An accounting period is the specific time frame a business or
individual uses to measure and report income and expenses. It defines when financial
records start and end, allowing accurate reporting and tax filing.
Types of Accounting Periods
1. Regular Accounting Period- 12 months in length
a. Calendar -January 1 to December 31.
b. Fiscal -Any 12-month period ending on a day other than December 31.

2. Short Accounting Period - less than 12 months,usually used for new businesses,
business closures, or changes in the accounting period.

Calendar Year
● The calendar accounting period starts from January 1 and ends December
31. This accounting period is available to both corporate taxpayers and individual
taxpayers.
- EXPLAINATION: A calendar year accounting period runs from January 1 to December
31. Both businesses and individuals can use this period to track and report their income
and expenses for the entire year.
Under the NIRC, the calendar year shall be used when the:
1. Taxpayers annual accounting period is other than a fiscal year (i.e. longer than 12
months in length)
2. Taxpayer has no annual accounting period (i.e. less than 12 months in length)
3. Taxpayer does not keep books
4. Taxpayer is an individual

Fiscal Year
● A fiscal accounting period is any 12 month period that ends on any day other than
December 31. The fiscal accounting period is available only to corporate income
taxpayers and is not allowed to individual income taxpayers.
- EXPLAINATION: A fiscal year is a 12-month accounting period that ends on a date
other than December 31. Only corporations can use a fiscal year to report their income,
while individuals must use the calendar year.
Deadline of Filing the Income Tax return
- Under the NIRC, the return is due for filing on the 15th day of the fourth month following
the close of the taxable year of the taxpayer. The regular tax due is payable upon filing
of the income tax return.
- EXPLAINATION: The deadline for filing an income tax return is the 15th day of the
fourth month after the end of the taxpayer’s accounting period. Any tax due must be paid
when filing the return.
Illustration: due date of the annual income return
1. Taxpayers under the calendar year must file their annual income tax return for the
current period not later than April 15 of the following year.
 - EXPLANATION:For a taxpayer using the calendar year (January 1 to December 31),
the income tax return must be filed by April 15 of the following year. This is because
April 15 is the 15th day of the fourth month after December.

2. A corporate taxpayer with a fiscal year ending June 30, 2021 must file its annual income
tax return not later than October 15, 2021.
- EXPLAINATION:For a corporate taxpayer using a fiscal year ending on June 30, the
income tax return must be filed by October 15. This is the 15th day of the fourth month
after June 30, marking the end of their fiscal year.

- These deadlines ensure timely reporting and payment of taxes based on the taxpayer's
chosen accounting period.
-

Instances of Short Accounting Period

1. New commenced business - the accounting period covers the date of the start of the
business until the designated year end of the business.
- EXPLAINATION: When a new business starts, its first accounting period covers
from the start date of operations to the chosen year-end (either calendar or fiscal).
This initial period may be shorter than 12 months because it only spans from the
start date to the end of that accounting year.
IIlustration:
Palawan Inc. started business operation on June 30, 2021 and opted to use the calendar year
accounting period

Ans. Palawan should file its first income tax return covering June 30 to December 31, 2021 for
the year 2021. The return must be filed on or before April 15,2022.
- EXPLAINATION:Since Palawan Inc. started business on June 30, 2021, and chose
the calendar year accounting period, its first accounting period will run from June
30 to December 31, 2021. This period is less than 12 months, which is why it's a
"short accounting period."

Palawan Inc. must file its income tax return for this short period by April 15, 2022,
which is the deadline for filing income tax returns for taxpayers using the calendar
year. The return must include the income from June 30 to December 31, 2021.

2. Dissolution of Business - The accounting period covers the start of the current year to
the date of the solution of the business.
- EXPLANATION:When a business is dissolved, its accounting period runs from
the start of the current year until the date the business is officially closed. This
period may be shorter than 12 months because it ends when the business ceases
operations.
Illustration:
Tawi-tawi Inc. is on the fiscal year accounting period ending every March 31 ceased business
operation on August 15, 2021.

Ans. Tawi-tawi should file its last income tax return covering april 1 to august 15, 2021
- EXPLAINATION:Since Tawi-Tawi Inc. uses a fiscal year ending on March 31, its
accounting period normally runs from April 1 to March 31 of the following year.
However, because the business ceased operations on August 15, 2021, its final
accounting period is from April 1 to August 15, 2021 (the date of closure).

- Tawi-Tawi Inc. must file its last income tax return covering this short period (April
1 to August 15, 2021), and the return is due within 30 days from the cessation of
business activities, meaning by September 15, 2021.
……..Continue the report …….
Under the old NIRC, dissolving corporations shall file the return within 30 days from the cession
of activities for 30 days from the approval of merger by the securities and exchange commission
in the case of merger. (BPI VS. CIR,GR 144653, August 28, 2011). Hence, the return shall be
filed on or before September 15, 2021.

For individuals the return shall be due on or before april 15, 2022. There is no requirement for
early filing under NIRC .
- EXPLAINATION:Under the old National Internal Revenue Code (NIRC), when a
corporation dissolves, it must file its final income tax return within 30 days from
the cessation of its business activities or from the approval of a merger by the
Securities and Exchange Commission (SEC). In this case, since Tawi-Tawi Inc.
ceased its operations on August 15, 2021, the return must be filed by September
15, 2021.
- For individuals, the rule is different. There is no specific requirement to file early
when an individual taxpayer dies. The income tax return is due by April 15 of the
following year. So, in the case of a deceased taxpayer, their final return must be
filed by April 15, 2022, and there is no need to file it earlier than that.

3. Change of Accounting Period by Corporate Taxpayers- The accounting period covers

the start of the previous accounting period up to the designated year end of the new
accounting period.
Note: Note that BIR approval is required in changing an account period. It is not automatic.
- EXPLAINATION:When a corporation wants to change its accounting period, it
means adjusting the start and end dates of its financial year. The new accounting
period must cover the time from the end of the previous period to the new
designated end date. However, this change is not automatic. The corporation
must first get approval from the Bureau of Internal Revenue (BIR) before making
any changes.
Illustration 1:
Effective February 2023, Sulu corporation changed its calendar accounting period to a fiscal
year ending every June 30.
Ans. Sulu corporation shall file and adjustment return covering the income from January 1 to
June 30 on or before October 15, 2023.
- EXPLAINATION:In this illustration, Sulu Corporation changed its accounting
period to a fiscal year ending on June 30, starting in February 2023. Because the
corporation’s previous accounting period was based on the calendar year (ending
December 31), it needs to file an adjustment return to account for the income
earned from January 1 to June 30, 2023.

- The adjustment return must be filed by October 15, 2023, because the deadline for
filing a tax return for a fiscal year ending June 30 is generally 3 months after the
fiscal year ends. Therefore, the adjustment covers the 6-month period between
January 1 and June 30, 2023.
Illustration 2:
Effective August 2023, Zamboanga Company change its fiscal year accounting period ending
every June 30 to the calendar year.

Ans. Zamboanga company should file an adjustment return covering July 1 to December 31
2023 on our before April 15 2024.
- EXPLAINATION: In this illustration, Zamboanga Company changed its accounting
period from a fiscal year ending on June 30 to a calendar year ending on
December 31, starting in August 2023. This means that the company now needs to
align its financial year with the calendar year, which runs from January 1 to
December 31.
- Since the company's fiscal year ended on June 30, 2023, and it changed its
accounting period in August 2023, the company must file an adjustment return to
cover the period from July 1 to December 31, 2023. This adjustment period is
necessary to reflect the income earned during the second half of the year under
the new calendar year system.
- The return must be filed on or before April 15, 2024, because the deadline for filing
a tax return for a calendar year (ending December 31) is typically on or before
April 15 of the following year. Therefore, the company has until this date to submit
the adjustment return.

4. Death of the Taxpayer- The accounting period covers the start of the calendar year until
the death of the taxpayer.
- EXPLAINATION:When a taxpayer dies, their accounting period ends on the date of
their death. The tax return must cover the income earned from the start of the
calendar year up to the date of death. After death, the estate or legal heirs must
file the final tax return.

Illustration:
Mr. Regonald died on November 2, 2023
The heirs of Mr. Regonald or his estate Administrators or Executors, shall file his last income tax
return covering his income from January 1 to November 2 2023. There is no requirement for
early filing in case of death of taxpayer. Hence the income tax return shall be filed on or before
deadline April 15, 2024.

Ans. It must be noted the cut off of income must be made at date point of death because
properties such as income accruing before death are part of the estate of the decent in estate
taxation while those income accruing after death are not part thereof. Hence, it is mandatory for
the accounting period of the taxpayer to be terminated exactly at the date of death.
- EXPLANATION:The answer emphasizes that when a taxpayer dies, the income tax
period ends on the date of death. This is because income earned up until the date
of death becomes part of the deceased's estate and is subject to estate taxation,
while any income earned after death is not included in the estate for tax purposes.
- Therefore, the final income tax return for Mr. Regonald will cover the period from
January 1 to November 2, 2023. This ensures that only the income earned before
his death is taxed as part of his estate. The tax return must be filed by the usual
deadline of April 15, 2024, without any early filing requirement due to the death.
- The key point is that the accounting period automatically ends at the date of death
to correctly distinguish between income that is part of the estate and income that
is not.

5. Termination of the accounting period of the taxpayer by the Commissioner of Internal

Revenue - The Accounting Period covers the start of the current year until the date of
the termination of the accounting period.
- EXPLAINATION:When the Commissioner of Internal Revenue (CIR) decides to
terminate a taxpayer's accounting period, the accounting period ends on the date
specified by the CIR. The taxpayer must file a tax return covering the income
earned from the start of the current year until the termination date set by the CIR.
Illustration:
The accounting period of a taxpayer under the calendar year basis was terminated by the CIR
on August 02, 2024.

Ans. The taxpayer must file an income tax return and the tax shall be due and payable
immediately.
- EXPLAINATION:Explanation:In this illustration, the CIR terminated the taxpayer's
accounting period on August 2, 2024. This means that the taxpayer's income tax
period ends on this specific date, rather than the usual December 31.
- The taxpayer is required to file an income tax return covering the period from
January 1, 2024, to August 2, 2024. Since the accounting period has been
terminated, the tax due for this period must be paid immediately after filing the
return. There is no waiting until the regular filing deadline (e.g., April 15, 2025).
The tax must be settled right away to reflect the terminated period.