Books of Accounts of Taxpayers in the Philippines
All persons engaged in trade or business, or in the practice of profession registered with the Bureau of internal Revenue (BIR) are required to maintain books of accounts. Books of accounts are required to be registered with the BIR and is where your records all financial transactions about your business. Entries in the books of accounts are matters of past transactions and events and are required to be supported by documents and papers such as official receipts, sales invoices, vouchers, and other related documents and papers evidencing completed business transactions. Your books of accounts will tell whether you paid the rightful amount of taxes due to the BIR so extra care and effort should be exerted in preparing the same to avoid unnecessary penalties.
The BIR allows three types of books of accounts – (1) manual books of accounts, (2) computerized books of accounts, and (3) loose-leaf books of accounts. It is the taxpayer who determines which of the three types would he adopt. However, Large Taxpayers duly notified by the BIR are mandated to use computerized accounting system. Of course, failure to maintain books of accounts is subject to penalties, or worst, imprisonment for willful and fraudulent intent to evade taxes.
Manual books of accounts
These are the readily available in the market and compiled ones you can normally buy from bookstores pre-printed with the corresponding names – Journal, Ledger, Columnar Journals, etc. Entries in the books of accounts based on the business documents and papers are recorded in a handwritten manner. You register the same initially after the release of your BIR Certificate of Registration. As soon as the pages are consumed, you are allowed to register additional volumes.
Computerized books of accounts
This represents the series of programs and operations configured into an accounting system and duly registered with the BIR. Upon registration, BIR will verify its capability to process the information accurately and the same will be undertaken through their developing a deeper understanding of the process and through some walk-through tests. This normally requires some amount of investment depending on the complexity of your operations. You can either secure the services of an IT-expert on accounting systems development customized to the complexities of your business operations, or you can simply buy readily available accounting systems in the market – e.g. QuickBooks, Peachtree, myob, zero, sap, etc. BIR registration of systems bough in the market may seem to be easier because of BIR’s familiarity in other application for registrations of other taxpayers, as compared to customized accounting systems that has to go through a thorough system evaluation by the BIR.
Loose-leaf books of accounts
This refers to loose sheets of computer printed books of accounts not generated under a computerized books of accounts. In other words, this is not a computerized accounting system simply printed, but, are simply computerized instead of being handwritten. For BIR registration, the BIR will require you to justify the need to adopt the same in lieu of the manual or computerized books. You will likewise need to present a sample print outs. Said sample print-outs will be book-bound and will be submitted to the BIR for stamping.
As to component parts, such books of accounts would depend on their BIR registration – value added tax (VAT) or other percentage tax (OPT or Non-VAT). VAT registered is normally required to maintains six (6) components, while OPT or NON-VAT registered taxpayers are normally required to maintain at least four (4) components as follows:
For VAT and Non-VAT or OPT registered
- Cash Receipts Books
- Cash Disbursements Books
For VAT Registered
- Subsidiary sales journal
- Subsidiary purchases journal
Please note that keeping books of accounts is critical for your business because it is where all your business transactions are recorded. Based on such records, tax returns and other tax compliance matters are prepared. If your bookkeeper prepares your returns without any books of accounts as basis, I suggest you consider securing their explanation as to the basis of your returns because it appears to be risky.
Books of accounts will need to be audited by an independent Certified Public Accountant (CPA) at the end of the taxable year as a matter of BIR requirement once your quarterly gross sales or receipts or earnings exceed P150,000.00, except, sole proprietors who opted for optional standard deduction. In an audit, the independent CPA or auditor will determine whether or not your books of accounts are prepared in accordance with the prescribed accounting rules – Philippine Financial Reporting Standards (PFRS). Audited Financial Statements will then be issued and will be attached to the annual income tax return (ITR) for filing with the BIR.
As a check and balance of your tax compliance, the BIR has the right to examine your books of accounts within three (3) years from date tax returns are required to be filed or from late filing of tax returns. Fraudulent returns or failure to file returns could be assessed within ten (10) years from discovery of fraud or falsity. During tax examinations of BIR, their tax auditors will conduct the verification and assessments through the books of accounts. Books of accounts are the responsibility of the taxpayer and it would not matter to the BIR who your bookkeeper is. In case of erroneous entries, BIR will run after you and not your retainer paid bookkeeper or employed accounting staff. Thus, we suggest that you give your best shot in choosing a good bookkeeper.
References for more readings…
Section 232 of the Tax Code, as amended
Revenue Regulations No. V-I
Revenue Memorandum Order (RMO) No. 20-2001, as amended by RMO No. 29-2002
Revenue Memorandum No. 13-82
RELATED SEMINAR – WORKSHOPS
We offer a once-a-month seminar-workshop on how to maintain your manual books of accounts that you may either do it yourself, or that you may effectively supervise the work of your accounting staff or retainer paid bookkeeper:
- Basic Business Accounting and BIR Compliance for VAT-registered
- Basic Business Accounting and BIR Compliance for non-VAT registered
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.
Bookkeeping Services. With our years of practice and being with the academe, we are confident that we could assist you maintain your books of accounts and prepare your tax returns in the light of the present rules, and regulations. We understand your financials and charges are at reasonable rates.
Tax Management and Compliance Consultancies. With our tax services, we can assist you ensure tax compliance and in the management of such continuing compliance. Proper compliance would bring about tax savings form avoiding being penalized to tax minimization strategies.
Quality Seminars and Trainings. We conduct other seminars, workshops and trainings on BIR tax compliance that you may learn to do your bookkeeping your own or at least develop working knowledge sufficient to supervise the work of your hired bookkeeper. Hereunder are our programs you could choose from:
- How To Analyze Financial Statements & Management Accounting
- Basic Business Taxation, Simplified
- Withholding Taxes, Subjects and Applications
- Compensation, Computations and Must Know Exemptions
- Value-added Tax, Ins and Outs
- Basic Income Taxation for Sole Proprietorship and the New ITR
- Basic Income Taxation for Corporations and the New ITR
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