Tuesday, September 25, 2018
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Planning and designing your business books

The following cases are common day-to-day situations faced by different business organizations of any size. Companies spend precious time and money in order to meet the urgent requests for important financial information by stakeholders which include top management, creditors, suppliers, customers, government agencies, external auditors and employees.

Case 1:


Through its CEO, Company A received a Letter of Authority (LOA) from the Bureau of Internal Revenue (BIR) requiring the presentation of the company books for 2009 as well as copies of the file tax returns, schedules and analyses of income and significant expenses within 15 days after receipt of said notice. The CEO requested BIR for an extension due to resignation of the Accountant.

Case 2:

The BIR assessed Company B for more than P3 million pesos due to non-submission of certificates of withholding tax on sales. This is required in order to support the deduction from the income tax base in computing the tax due the government for the year 2009. An accounting firm was engaged to reconcile the 2009 withholding taxes taken up in its books and therefore reflected in the filed income tax returns with the taxes withheld by clients as reflected in the tax withholding certificates issued by the customers.

Case 3:
The external auditors of Company C were not able finalize the audited financial statements for submission to the government agencies for the calendar year ended December 31, 2010 because of discrepancies noted between the general ledger (reflected in the final accounts summary) and the subsidiary ledgers (shown in the detailed accounts).

Why can’t the companies provide the needed data instantly? Why dosubmission of requested information become problematic? What are the causes of these perceived problems? Do the accounting personnel not competent enough to maintain the company books?

When buying or building your house, you need a good engineer to build its foundation and structure based on an architecturally well laid out plan and budget. In designing your desired master’s bedroom for example, you need enough space where you can place a king-sized bed, two side tables, a two-seater sofa, a few entertainment appliances and built-in cabinets where your personal belongings can be organized neatly and kept within your easy reach so you can feel comfortable and relaxed in your room.

Similarly, the books of accounts of any organization of whatever form, and size needs to be well planned and designed in the same way. There is need to assemble all the significant information and anticipate all the information that may be required by the various internal and external users. It should be ensured that information for vital management decisions are easily retrievable at any time.

The formerly reliable manual books of accounts are no longer being used by many companies because of stringent statutory reporting and filing requirements of various government agencies which require the reports to be uploaded to their websites. Now, the use of computerized books that is compatible with the company’s accounting system as dictated by its nature and operational requirements is a lot cheaper and convenient. It is the responsibility of the finance/accounting officer and/or the outsource service provider to properly plan, design and set up as part of the accounting system the chart of accounts which contain a complete list of accounts to be used in recording the daily business transactions.

The accounts must be carefully defined and should be easily recognizable by the local management and the Head office (in the case of multinational companies) for ease in consolidation of accounts and in order to comply with statutory reporting requirements of various government agencies. For example, in the case of filing the quarterly value added tax return, the BIR requires companies to provide information on sales and purchases that are subject to VAT, including sales are non-VAT and those that are VAT-exempt. The accounts that the company can use will be determined by the type of information needed to make the preparation of VAT returns easy.


Another concrete example is the requirement of the BIR to submit a list of itemized expenses claimed as deductions in the annual income tax return. It is more advisable to use the BIR-prescribed expense accounts to facilitate the preparation of income tax return and ensure fast retrieval of data. This simplifies the preparation of account analysis on data that is the being looked into by the BIR.

If the customers deduct withholding taxes from the company’s billings but could not provide the Certificates of tax withheld in the quarterly income tax return when the service is rendered, the account income tax liability cannot not be used to reduce the tax liability. Instead, a receivable account from customer should be set up in the books to reflect the unsupported withholding tax.

All the revenue accounts, expenses and balance sheet accounts appearing in the chart of accounts must be well defined for the proper guidance of the accounting personnel. Hiring qualified people and training them are necessary in order to maintain orderly books of accounts. If the maintenance of books is outsourced, a provider who is known for good quality of services must be engaged.

Organizations to spend time to properly design their books and anticipating possible problems well. And this means that all necessary accounts are properly coded, described, and classified so that any financial data is recognizable of any user of the financial statements.

I hope that this short advice will lessen your problems Accounting workneed not be stressful nor difficult. There is great value and cost savings when we carefully plan ahead.

(The author is president and CEO of E. Punongbayan Global Outsourcing, Inc. www.epglobalbpo.com Feedback at 519 2111; 519 2888 Loc. 100.)

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TAGS: book keeping, company, income tax returns, taxes
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