What is a Book of Accounts?
Book of accounts is the place in which all of the financial transactions and operations of a company are recorded. It enables business owners to understand how money is coming in and out of the business. Books of Accounts are important for preparing cash flow forecasts and financial reports.
The Bureau of Internal Revenue (BIR) requires that all corporations, companies, partnerships and individual taxpayers in the Philippines must have books of accounts where their business transactions are recorded. BIR checks these records when they conduct their random tax mapping and audit.
Types of Accounts
There are three main types of Books of Accounts approved by BIR; The (1) Manual Books of Accounts, (2) Loose-leaf Books of Accounts and (3) Computerized Books of Accounts. The taxpayer decides which one of the three they want to use. However, Large Taxpayers duly notified by the BIR are mandated to to use Computerized Accounting System (CAS) thus, Computerized Books of Accounts. Companies must register their books of account with the BIR upon incorporation and also on an annual basis.
Manual Books of Accounts
It is the traditional handwritten journal and ledger, there are no automated processes used for this type of book. Usually used by small businesses. Manual Books of account is the most popular accounting book across the Philippines. Companies don’t have to apply for a BIR permit to use the manual book system. Though, manual books of account do have to be registered with the BIR upon registration of the business and subsequently when the current book has been used up.
Loose Leaf Books of Accounts
A somewhat hybrid system between manual and computerized book. It is a record of transactions that are encoded on a computer using an accounting software/system, printed out and serves as the bookkeeping record of the taxpayer. However, if the company wants to use a loose-leaf book of account, it must apply first to the BIR for a permit enabling the company to do so.
Cloud-based accounting is usually used in conjunction with the loose-leaf books as they achieve more efficient processes and generate real value-added information for the company without the effort and expenditure required for the registration of the computerized books of account.
Computerized Books of Accounts
It is an accounting program that facilitates efficient and fast record keeping. These books of accounts are “system generated”. This means recording transactions and generating reports and documents are computerized accounting systems. It is used in bigger organizations that deal with the large volume of transactions.
This format can only be registered at BIR’s National office. The BIR must first approve the company’s use of the computerized books of accounts, including the particular computerized system that the company is operating.
Audit
Each year, many companies in the Philippines are required to have their books of accounts audited and submit an Audited Financial Statements (AFS) to the BIR.
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