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Bookkeeping 101: A Guide for the Self-Employed

Your books of accounts will give you a clear image of how your business is doing today.

Staying on top of your books of accounts will help you learn how to compute tax and run your business better.

Knowing where your money goes will help you create effective business decisions. It will also save you from forgetting your tax dues and getting penalties.

Bookkeeping 101

Bookkeeping is a necessary part of running a business. It is vital to know where your money goes and how it’s spent, no matter how big or small your business is.

It is a systematic recording and organization of financial transactions for your business.

Most of the time, bookkeeping gets interchanged with accounting. But the difference is quite clear. Accounting is all practice of financial management. Bookkeeping refers to tasks that you do in recording financial activities.

Bookkeeping may include management of the following:

  • Expense payment tracking
  • Loan payments
  • Customer payments
  • General financial reports
  • Asset monitoring

Every taxpayer needs to prepare and manage the following books:

  • CASH RECEIPTS  – These are sales receipts you get every month. It divides into Vatable and Non-vatable sales, and include the Output VAT.
  • CASH DISBURSEMENT – Keeps track of cash issued. Purchases are set into Vatable and Non-vatable purchases as well as the Input VAT.
  • GENERAL JOURNAL – It’s the record of debits and credits made in the accounts.
  • GENERAL LEDGER- It shows the summary of debits and credits made by the company


Types of Books for Bookkeeping

Here are some of the books that you can file for bookkeeping.

Traditional Books of Accounts

These books are usually encoded by hand. It is also the most popular type of books filed by small enterprises. It costs less and is the most popular type of books of accounts registered with the BIR.

Loose-leaf Books of Accounts

These books of account are bound journals and ledgers from printed excel spreadsheets. There might be a need for you to justify why you chose this method instead of traditional books. And sample printouts may need to be book-bound before submission to BIR for stamping.

Computerized Books of Accounts

These books use computer-based apps that enable efficient and fast record keeping. If you decide to go with this, the system you should use should be BIR-registered.

Examples of these books include Quickbooks, Peachtree, and MYOB.

Books of Account Requirements for Businesses

Here are the requirements for freelancers, sole proprietors, and businesses in retail.

Books of Accounts for Freelancers

For freelancers, you will need the following to create and register your book of accounts.

  • 2 copies of BIR Form-1905
  • BIR Certificate of Registration photocopies
  • Books of accounts including general journals and general ledger. This also includes your cash disbursement and cash receipt journal.

Books of Accounts for Sole Props Engaged in Service

If you’re a sole proprietor who sells services, here are the requirements you need.

  • BIR Form 1901 – Application for Registration for Self-Employed and Mixed Income Individuals, Estates and Trusts
  • Bound books of accounts for registration or stamping. You will also need bound journals and/or ledgers
  • Proof of Payment of Annual Registration Fee (BIR Form 0605) – current year.

Read more about bookkeeping tips for the self-employed here.

Books of Accounts for Business Engaged in Sale of Goods/Retail

Here are the requirements you need if you are a retail business selling goods.

  • BIR Form 1903 – Application for Registration for Corporations/Partnerships (Taxable/Non-Taxable) Including GAIs And LGUs
  • Bound books of accounts for registration or stamping. You will also need bound journals and/or ledgers
  • Proof of Payment of Annual Registration Fee (BIR Form 0605) – current year.

Four Key Steps in Bookkeeping Basics

Every small business needs to learn what they need to do for bookkeeping. Here are the steps to get you started.

  1. Collect all the documents you need, including bank statements, check and deposit records. You will also need vendor bills, purchase receipts and invoices. 
  2. Record this information from the source documents to your books.
  3. Perform procedures like balancing accounts and reconciliations
  4. Close the books.

Why You Need Bookkeeping in your Business

Bookkeeping gives you a clear idea of how you are handling your business. Monitoring how cash flows help you make better business decisions. It also gives you an idea of what strategies to use to grow your business.

It also saves you much needed time and energy when it comes to filing your taxes. Keeping track of your expenses and cash flow also helps make sure that you’re not missing any deductions.

Proper bookkeeping also lets you report to your investors easier. Investors need to see the crucial information about your financial status. This will help them decide if you’re worth the investment.

You also avoid any issues with the government if you file and report your taxes.


Bookkeeping Tips You Need to Know About

Here are the bookkeeping basic tips every business owner and freelancer must know.


Double entry bookkeeping

In the double-entry system, every financial transaction has equal and opposite effects in at least two different accounts.

For example, you spent P3,000 for premium Angus beef for your restaurant. At first glance, you’ll think that you’ve lost P3,000. But you’re adding the beef to your inventory and will use it to create dishes to sell to customers.

So in your system, the entries should be like this:

Inventory: +P3,000

Cash account: -P3,000

The double-entry system shows you the loss of cash and the gain in the inventory.  It helps you see what’s happening to your business

Keep financial records

There are three main sets of records that you need to maintain – cash book, sales invoice file, and purchases invoice file.

Cashbook refers to the payments into and out of your bank account.  To have a clear picture of your financial forecast, it is best to keep this updated.

You can keep your sales invoice file via Word or online accounting systems. It’s also wise to make notes on invoices, including when you paid them and how.

Here are the other accounts you can create to track your finances:

  • Accounts payable or the money you owe to others
  • Payroll expenses or your staff salaries and other costs
  • Owners’ Equity or the amount you put into the business
  • Purchases or supplies you buy for your business
  • Retained Earnings or the profits you get

Understanding assets, liabilities, and equity

The accounting equation that can help you balance your books is Assets=Liabilities+Equity.

To balance the books, you have to understand these initial bookkeeping terms.

Assets – This refers to the property or equipment that you purchased only for your business. Examples include buildings, inventory, office furniture, and cash.

Liabilities – This is your business’ financial obligations while your business operates. It includes income taxes payable, salaries payable, and customer deposits.

Equity – This includes all the claims the owners have against the company.

Get help if you need it

Bookkeeping can be a complex process as your business grows. A single transaction can be time-consuming. Some transactions may involve several entries and may overwhelm you.

It would be best to hire a professional accountant or bookkeeper to help you.  But better yet, there are online platforms available such as Taxumo, which can quickly generate the entries that need to be in your various books of accounts in the correct format.

Based on the income and expenses you’ve entered, Taxumo can quickly generate the entries that need to be in your various books of accounts in the correct format.

All you have to do is enter your income and expenses. No more printing, paperwork, or submitting forms to the BIR.

Keeping your books of accounts need not be complicated.


Get Started with Taxumo!

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