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
For VAT Registered
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 (Update under TRAIN Law: ..there is a mandatory requirement for corporations, companies, partnerships or persons whose gross annual sales, earnings, receipts or output exceed Three million pesos (₱3,000,000) to have their books of accounts audited and examined yearly by an independent Certified Public Accountants). 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.
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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. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.
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In practice, a bookkeeper is the term used to refer to a person who handles the books of accounts and tax compliance of a taxpayer business enterprise. A bookkeeper could be an employee hired for the purpose, or an independent person retained by the taxpayer. An independent person could be an individual practitioner or a firm engaged for such bookkeeping activities, either, as a corporation or as an outsourcing group of an accounting firm.
Under the present rules, a practitioner who prepares books of accounts and tax returns, or appears/ represents a tax authority for and in behalf of a taxpayer has to be an accredited tax agent in order to bind clients. The purpose of the requirement is to impose accountability for the tax agent and for the Bureau of Internal Revenue (BIR) to regulate their conduct and ensure smooth application of tax rules and regulations for effective tax administration. However, this does not excuse the taxpayer from its full responsibility over the books of accounts and the tax returns duly filed.
Should the BIR finds irregularities and misstatements, it is still the taxpayer who is principally bound to pay and not the bookkeeper. BIR runs after the taxpayer for civil liability, and worst prosecutes taxpayers for tax evasion charges, if warranted.
To minimize the risk of liability would be to see to it that your hired bookkeeper is the right person for the job, and that you properly supervise its work. To supervise them would be to equip yourself with a working knowledge, or the technical knowledge for better supervision. To determine a good bookkeeper to consider, we have summarized the following characteristics as a simple guide for your reference.
1. Professional competence
Bookkeeping is a work of a professional not only by physical appearance and conduct in its dealings, but, more importantly, in its technical knowledge or professional competence. Accredited tax agents does not require a Certified Public Accountant (CPA) title, not even a college degree title. It would be better if you could have a titled one, but we suggest you inquire further as to its experience and ability to deliver your requirements and expectations in ensuring compliance with the tax and accounting rules, and regulations. Ask questions about the tax and accounting implications of your operations and related problem areas, as well, and evaluate the bookkeeper’s answers to determine its deep understanding of the issues and how it develops its approaches. In the process, you will develop an idea of how competent the bookkeeper is. You can always seek second opinion to validate and appreciate his answers.
2. Resourcefulness
Business is not always perfect and problems or issues or challenges comes once is a while. A good bookkeeper is one who sees light in the dark times of its client. A bookkeeper is a waste basket of client’s issues or headaches and must treat each of them as a challenge, not a headache in themselves. For accounting and tax concerns, your bookkeeper should be on top of the situation to give you an informative advice. It may not always possess the best answers right away all the time, but must learn how to get the best options in a timely manner. There could be a lot of ways to know them and may consume time, but a resourceful one could do it the best way in a timely manner. The bookkeeper would be honest enough to admit that he does not have the “answer” at hand and will tell you it will get back to you for the answer. Ask how it got the answer that you might see how he applied its being resourceful enough to determine solutions.
3. Transparently honest
Gone are the days when the bookkeeper simply says, “I will take care of it, worry not about it“, during issues and concerns. If you do it now, then, you might be prone to surprises of having to pay penalties for things you are not aware of the way some clients experienced. A good one will analyze the issue at hand, advise you of the consequences and opportunities, if any. After identifying the problem, it will determine alternative solutions and after explaining its pros and cons, will give you an honest recommendations on the best option the way it sees it for you to decide. Bookkeepers and professional advisers do not decide for you, they, just give you a picture of the holistic view, and recommend for your consideration. You could choose that which you think is best, after all, its your liability and your business assets are at stake. The point is, you were provided by the bookkeeper with the details of the issue and the alternatives in arriving at the decision right for you.
4. Client focused
This is the personal aspect of the dealing with the bookkeeper. As we conceptualize professional dealings – “Client success is our delight and ultimate happiness“. This would mean that the bookkeeper does not only concentrate on the fee it will earn from you, but, for the benefit you will enjoy from his services. One who loves his work, does his work with all his heart giving less regard to the profits it will generate as it would only be an incident of such love of work. A good bookkeeper should be attentive to the needs of its clients, be mindful of the risks its clients are exposed that it may timely apply remedial measures, and be alert of the opportunities its clients may enjoy – say, from new regulations beneficial to clients.
5. Accessible
Our present world is an era of high technology where all means of communication is available to the willing and determined service provider. A good bookkeeper is visible to the client. This means that, in case of need, you can easily access the bookkeeper for concerns and issues. He might not be available during midnight when you are at peak thinking about the issue and submitted to it your burden, but a good one, would jump to its feet to respond within the first opportune time to make you feel his presence.
6. Professionally active
As we know it, change is permanent. Rules and regulations, practices, and business circumstances keeps on changing and changing. A good bookkeeper should be professionally active to learn anew. With his professional dealings, the bookkeeper will encounter new and exciting things on how things are being efficiently done and such things could be applicable to your circumstances for your advantage. Determine your bookkeepers circle of friends – portfolio of clients, professional affiliations, its network of professionals, and even his personal friends, if practical, to his how active he is.
Summary
The above enumerations are simple guidelines and are not exclusive. There could be more good qualities depending on how you see it and you may also consider them in hiring a bookkeeper or in maintaining one. After all, its your call and you will be accountable for your choice. Being the best is relative and not absolute in anybody else. One could be best in one aspect, but is low on other aspects. You do not need a perfect one, just one who will bring up your best in your business dealings in your road to success.
Evaluate now the qualities of your bookkeeper and determine for yourself if they are worth keeping. If they do not, then, let this be your opportunity to change for the better and for the best interest of your business success. You exert too much effort in your business dealings and you deserve a better bookkeeper to walk with in your road to success.
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