As a business owner and tax payer, maintaining a record of your day to day business transactions is not only a necessity, but a requirement. This record is called a “book of accounts”, aptly named since it is literally a record of your operations. It is also a convenient means to see the results of your daily business transactions.
The BIR will require you to register your book of accounts when you apply for a certificate of registration. Registration must be accomplished on an annual basis, on or before January 31st.
BIR Approved Formats of Books of Accounts
These are the acceptable formats for books of accounts:
Manual Books of Account
These are the traditional pre-printed types of books that are readily available in office supplies stores and bookstores. Referred to as journals, columnar books journals, or ledgers, entries are usually handwritten or manually updated. Because it is the most cost-effective and easiest means of booking accounts, it is also the most popular, especially among micro or small business ventures. It is also fairly easy to register manual books with the BIR.
Loose-leaf Books of Account
Loose-leaf books are printed and bound ledgers and journals, similar to manual books of accounts. The main difference is that instead of handwritten ledgers, records or entries were not manually written, but typed into a computer and printed out, usually using simple systems like Microsoft Excel.
When you register loose-leaf books of accounts with BIR, you will need to justify why you utilized this particular method instead of manual or computerized booking. Sample print outs will be required to be book-bound submitted to BIR for stamping.
Computerized Books of Account
This method employs the use of computer programs that have been configured in an accounting system to facilitate easy, accurate, and speedy record keeping. The system should be registered by the BIR because of the need to verify how accurate and capable your computer system is in keeping your books of account. Systems such as Peachtree, QuickBooks, XERO, SAP, or MYOB are readily available in the market.
These entries that are usually found in your books of account, which will vary depending on your type of business. (For example, for businesses engaged in the sale of services, the first four types of entries below are required, whereas business engaged in the sale of goods or properties are required to maintain all six below.)
General Journal – otherwise called the book of original entry, it is a recording of business transactions entered into the books based on the date of transaction, using the principle of “debit and credit”.
General Ledger – also known as the book of final entry, it is a summary of all journal entries in order to get ending balances.
Cash Receipt Journal – a recording of cash sales as well as the collection of receivables.
Cash Disbursement Journal – a recording of cash payments and payables, if any.
Sales Journal – a recording of receivables from customers, or any sales made on credit.
Purchase Journal – a recording of purchases on credit or payables due to suppliers.
In most cases, books of accounts are audited by an independent Certified Public Accountant every year when your quarterly earnings exceed P150,000. You will then be issued with an Audited Financial Statement which will be filed along with your income tax return.
As a final note, be aware that the BIR doesn’t care who your bookkeeper is. What matters most is that your books of account are prepared within prescribed accounting rules, which means that any erroneous entries are the business owner’s responsibility, and not that of the bookkeeper or accounting staff who prepared the books, so make sure that you hire not just anyone to do your bookkeeping for you.