- April 29, 2021
- Accounting
Every corporation, partnership, and tax-paying individual (sole-proprietor or professional) is required to have records of their daily transactions. As a business owner, you need to log your daily operations. Knowing the exact numbers allow you to make informed decisions and projections. Most of all, you need to properly record the amounts of your transactions for tax filing purposes. It is this set of records that are called “books of account”.
The Details of These “Books”
In general, each transaction a business entity makes falls under a certain account. If you buy inventory with cash, you will see a decrease in your cash account, and you will log an increase of an equal amount to your inventory account. These accounts have to be registered with the Bureau of Internal Revenue and can be registered as one of the following types:
- Manual Books of Accounts (handwritten)
- Loose-leaf Books of Accounts (typewritten and printed)
- Computerized Books of Accounts (specialized accounting software).
These above-mentioned books assure transparency that all transactions are duly credited and all income and expenses rendered are accurate. If you don’t maintain your accounts accurately, you may be subject to Oplan Kandado or Tax Mapping.
The Books of Accounts
Below is the list of books of accounts that are the minimum requirement for any business entity, may it be sole-proprietorship, corporation, partnership, or professional category.
1. General Journal
This is the most basic book of accounts and is also called the book of original entry. This is because all transactions are first encoded herein in order of occurrence, using the double-bookkeeping method that utilizes debit and credit.
2. General Ledger
The General ledger summarizes the transactions of the general journal under each account to get their ending balances. For example, the general ledger of cash would compile all transactions under cash, both debit and credit, listed in the general journal. This process is done for all accounts under assets, liabilities, and equity.
3. Cash Receipt Journal
A cash receipt journal is a detailed journal used specifically for cash sales and collection of receivables. As seen in its name, cash receipt refers to any transaction that adds to the company’s cash assets.
4. Cash Disbursem*nts Journal
Opposite the cash receipt journal, the cash disbursem*nt journal is a special journal that companies use to record their cash payments and payables. A cash disbursem*nt is any sum of cash or amount of payables that reduces a company’s cash assets.
5. Sales Journal
The sales journal is a journal that is used to record credit sales only. These credit sales are what customers owe to the company for their service or goods. It is, therefore, representative of the amount that a company will need to collect from a customer for a sale of goods and services.
6. Purchase Journal
A purchase journal is a special journal companies and individuals use to compile the purchases made on credit. Purchases made on credit is defined as the sum that a company or person owes to their suppliers.
It is important to note that while these are the minimum requirements, the books of accounts used by your business are dependent on the product of your company, whether it provides services or goods. Only four Books of Accounts are required in the service business, namely General Journal, General Ledger, Cash Receipts Journal, and Cash Disbursem*nt Journal. For businesses that partake in the sale of goods (wholesale or retail), all six of the minimum required books of accounts are required.
Final Wrap Up
There are many books of accounts that you need to have registered and monitored in order to properly run your business. Failure to update accounts and the inability to record even one transaction may lead you to err on your financial statements and tax filing. It may seem overwhelming, but with enough patience and practice, you will be able to manage.If you find difficulty keeping a record of your books of accounts or need help in getting these accounts registered, do not fear seeking assistance from professionals in the field.Give our firm a call for a FREE 30-minute consultation so we can help you get started. Our team of certified public accountants can help you manage your book of accounts and conduct other bookkeeping services. Our mission is to get your books of accounts in order and to make sure all transactions are accounted for so you don’t have to worry about surcharges and penalties from the BIR.
