Recording the Essentials: Your Guide to Books of Accounts

Being a taxpayer goes beyond filling out forms and calculating your dues. Your Books of Accounts serve as the silent backbone of your business, meticulously recording every financial transaction. In the Philippines, these records are not just recommended – they are legally required.

Section 232 of the Tax Code, as amended, mandates that all corporations, companies, partnerships, or persons required by law to pay internal revenue taxes shall keep and use relevant and appropriate set of bookkeeping records duly authorized by the Secretary of Finance wherein all transactions and results of operations are shown and from which all taxes due the government may readily and accurately be ascertained and determined any time of the year.

Understanding Books of Accounts

So, what exactly are these crucial Books of Accounts? Essentially, they are the financial diaries of your business, where every transaction and result of operations finds its place. This is a helpful tool to see how your business is doing. Note that one cannot just get these and start recording a business’s transactions – the book of accounts must also be registered with the Bureau of Internal Revenue (BIR). This is a mandate because this allows the BIR to keep an eye on businesses to make sure they are paying the right amount of tax dues and complying with other requirements.

According to Revenue Memorandum Circular (RMC) No. 29-2019, there are three (3) approved formats of Books of Accounts in the Philippines:

1. Manual Books of Accounts: This traditional method involves handwritten entries in journals, ledgers, and columns readily available in office supply stores. It’s a popular choice for small businesses due to its affordability and simplicity in BIR registration.
2. Loose Leaf Books of Accounts (with a permit to use): These books involve encoding transaction details on a computer and generating templated copies through printing. These printed copies are then bound as the official bookkeeping record.
3. Computerized Books of Accounts (with a permit to use): Utilizing accounting software, this format streamlines record-keeping processes. However, it generally takes longer to gain BIR approval due to the need for a comprehensive assessment of the system’s compliance with regulations.

The 6 Books of Accounts

According to the Bookkeeping Regulations (RR No. V-1), “books of accounts” shall include the journal and the ledger and their subsidiaries, or their equivalents. Journal is the book of original entry in which the happenings or transactions affecting the business of the taxpayer are recorded consecutively day by day as they occur. On the other hand, ledger is a book of final entry to which are posted the classified accounts or items of all transactions entered in the journal or its equivalent.

“Simplified set of Bookkeeping Records” consists of the record of sales and cash receipts, the record of daily purchases, expenses and cash disbursements, record of the summary of transactions, and the yearly statements of net worth and operations.

The BIR as its general practice, requires taxpayers to maintain at least four books: the General Ledger, General Journal, Cash Receipts Journal, and Cash Disbursements Journal. For VAT-registered taxpayers, the BIR requires them to register the same four (4) books, along with two (2) additional ones: the Subsidiary Sales Journal and the Subsidiary Purchases Journal.

Registering Your Books of Accounts

In January 2023, a significant change was introduced through RMC No. 3-23, which modified Section 2 of RMC No. 29-19 concerning the registration process for books of accounts, whether they are manual, permanently bound loose-leaf, or computerized. The new protocol mandates the online registration of all books of accounts via the Online Registration and Update System (ORUS). This system generates a Quick Response (QR) Code for online validation, effectively replacing the traditional manual stamping process carried out by BIR officers.

However, we recognize that many taxpayers have encountered difficulties accessing ORUS due to frequent system downtimes. Despite the online registration mandate, several Revenue District Offices (RDOs) still permit taxpayers to register their books of accounts in person at their offices. It is advisable to inquire with your local RDO to determine if they continue to accept manual processing of books of accounts registration.

1. Manual Books of Accounts: These should be registered before the deadline for filing of the initial quarterly Income Tax Return (ITR) or the annual ITR, whichever comes earlier. Subsequent registration requires you to register the same before the full consumption of the pages of the previously registered books. It is also noteworthy that new sets of manual Books of Accounts are no longer required to be registered every year. However, taxpayers may opt to use new set of books of accounts yearly. Hence, new sets of manual books shall be registered before its use.
2. Loose Leaf Books of Accounts: These should be registered within fifteen (15) days after the end of each taxable year or within fifteen (15) days from the closure of business operations, whichever comes earlier. Subsequent registration requires you to submit permanently bound loose leaf books of accounts annually.
3. Computerized Books of Accounts: These should be registered within thirty (30) days from the close of each taxable year or within 30 days from the closure of operations, whichever comes earlier. Subsequent registration requires you to submit the same on an annual basis.

Final Note

Whether you’re an accountant, a business owner, part of the accounting department, or a freelancer, understanding these different Books of Accounts is essential for compliance with the law.

As a check and balance of your compliance, the BIR holds the authority to examine your books of accounts. Such authority can occur within three (3) years from the date tax returns should have been filed or from the date of late tax return filings. In cases involving fraudulent returns or the failure to file returns, this assessment window extends to ten (10) years from the discovery of fraud or falsification. When the BIR conducts tax examinations, its auditors will meticulously review and evaluate the content of your books of accounts. It’s important to note that the responsibility for maintaining accurate books of accounts falls squarely on the taxpayer’s shoulders, regardless of who serves as the bookkeeper. In the event of any erroneous entries or discrepancies, the BIR will hold the taxpayer accountable, rather than targeting the bookkeeper, whether they are a retained service provider or an in-house accounting staff member. Thus, we suggest that you give your best shot in choosing a trusted bookkeeper.

Disclaimer: This article is intended to provide general conceptual guidance and should not be considered a replacement for expert advice. For personalized and precise details that pertain to your unique situation, we recommend consulting with a qualified tax consultant. If you have any questions or comments, please don’t hesitate to reach out to us via email at godelacruz@theblueledgerconsulting.com, or feel free to send us a message through Messenger for a quicker response.