Bookkeeping for Filipino Freelancers &

Small Businesses
What is Bookkeeping?

Bookkeeping involves keeping track of the financial transactions made by

your business from the day it opened, up until the present. All transactions that
have financial implications must be documented by a bookkeeper. This may come
in the form of a receipt, purchase order, invoice, or another type of financial record.

Bookkeeping transactions can be recorded in a journal by hand, or through

a spreadsheet program such as Microsoft Excel or Google Sheet. Many businesses
also use specialized programs to show their financial transactions.

Bookkeeping is the part of accounting that’s concerned with the collection and
organization of financial documents. This means that it is the bookkeeper’s job to
gather, organize, and file every bit of data related to your company’s finances. A
bookkeeper is in charge of compiling:

 Invoices
 Receipts
 Payroll records
 Bill statements
 Bank and credit card statements
 Tax forms and returns

The Importance of Bookkeeping

Many small business owners and freelancers make the mistake of thinking
that bookkeeping’s only benefit is to help them stay organized. However, its
advantages go far more than that.

1. It gives you an accurate financial transactions record

All business owners must understand where their cash is coming and going.
Bookkeeping is the solution to this.
If you want to know how much you spend on electricity bills, rent, your staff’s
office supplies, or even how lucrative your new customers are compared to old
ones, you should have a bookkeeper.

This record will come in handy when you encounter minor and major
discrepancies between vendors, employees, and customers.

2. It helps you budget

Another reason why bookkeeping is crucial is that it helps business owners
allocate funds properly. When your expenses and income are organized, you can
easily review your financial resources.

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 Through this, you can create a better financial plan for your business to foster
growth. If your books are not up to date or accurate, all your spending will be
guesswork.

3. You can prepare for tax

Filing taxes may not be an interesting part of running a business, but it is
mandatory. When your bookkeeping is in order, you can have your financial
information ready, and the government won’t be breathing around your neck.

4. It will enable you to plan your future

The goal of every business is to grow. However, this can’t be done with poor
financial records. When bookkeeping for your brand is in order, you can take the
guesswork into setting financial goals for your business. Therefore, you can map
out your next steps accordingly.

5. It gives you peace of mind

Running a business is hard on its own, and you don’t need additional stress.
When you prioritize your bookkeeping, you are sure that all your financial
information is ready for review by the government anytime. Therefore, you can put
your effort into other aspects of your business such as marketing.

Difference between Accounting and Bookkeeping

If you don’t have any prior background in running a business, you may
think that bookkeeping and accounting are the same things. Although accountants
and bookkeepers may have similar goals, they are integral for different purposes.

Bookkeeping is more transactional since it is concerned with the record of

financial transactions. On the other hand, accounting is more subjective. It gives
business owners an insight into their business’s financial health based on the
bookkeeping information.

To illustrate the difference between the two better, we’ve outlined the major
tasks of both processes below.

Bookkeeping

 Recording and categorizing daily expenses and payments

 Sending invoices and record payments received to customers
 Taking care of bank reconciliations
 Generating monthly financial statements
 Processing payroll
 Preparing books for accountants
 Providing financial and tax documents to accountants annually

Accounting

 Preparing adjusting entries

 Analyzing operation cost

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  Advising entrepreneurs to make better financial decisions
 Analyzing financial statements
 Assessing financial health
 Making financial forecasts
 Performing audits
 Filing tax returns, taking care of tax planning, and providing tax advisory

Types of Books for Bookkeeping

Here are the books that you can use for your bookkeeping.

1. Traditional Books of Accounts

These books are usually hand-written. It is the most common type of
book that is filed by small business owners because it costs less.

2. Loose-leaf Books of Accounts

This refers to bound ledgers and journals composed of printed excel
sheets. Business owners may need to justify why this is their chosen
method compared to traditional books.

You may also need to book-bound printouts before submitting them to BIR.

3. Computerized Books of Accounts

Without question, this is the most convenient and quick way to track
your financial records. However, you must choose a BIR-registered system if
you want to go with this system.

You can make this type of book of accounts in Quickbooks, Xero, Wave,
Excel, and many more.

Different Types of Bookkeeping Methods

Here are the different types of methods you can use to record your
business transactions.

1. Single entry vs Double-entry

Single-entry bookkeeping is perfect for businesses that are small and

simple, and do not have a huge volume of activity. It is also a great method
for freelancers who work with limited clients.

This method is just like keeping track of your checkbook. For single-entry
bookkeeping, all you need to do is keep a record of transactions such as
taxable income, cash, and tax-deductible expenses.

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It is called a single entry because only one entry is made for every
transaction, similar to check registers. In one column, the entries are
recorded as negative or positive. You may also keep a two-column ledger,
with one column reserved for expenses, and one for revenue. This is still
single-entry because there is only one life for every transaction.

The single-entry method does not track important elements such as

accounts receivable, accounts payable, and inventory. While its simplicity
can be an advantage, it can also be prone to mistakes and incompleteness.

Meanwhile, double-entry bookkeeping is a common method used by many

businesses, even small ones who prefer detailed information. Its process is
more complex because it introduces debit and credit.

For every transaction, there is something given up, which is credit, and
something that is received, or debit. This process ensures that the record of
business transactions is accurate.

2. Cash vs Accrual

Cash basis recognizes expenses when something is paid, and revenues when
there is cash received. However, it does not recognize accounts payable or
accounts receivable.

A lot of businesses use the cash basis of accounting since it is very easy to
maintain. It is also simple to determine when transactions occur. This cash
method is great if you want to track how much cash businesses have at a
given time.

Meanwhile, the accrual method is when the expenses and revenues are
recorded when they are earned, regardless of whether it is paid or received.
For instance, when a project is completed, it is recorded as revenue, instead
of the time when it has been paid. It is also more commonly used compared
to the cash method.

This method gives a better and more realistic idea of expenses and income
in a certain period, so it’s very useful for the long-term picture of
businesses.

However, its capacity is also limited because it does not give awareness of
one’s cash flow. For instance, you may think your business is profitable
when it is not.

The major difference between the two is when expenses and revenue are
recognized. The cash method involves instant recognition, while accrual
focuses more on anticipated revenue and expenses.

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Important Bookkeeping Records & Documents to Maintain for Businesses in
the Philippines

The Bureau of Internal Revenue said that there are six books that
businesses should maintain regularly.

1. Journal
This is a detailed account that records financial transactions of
businesses that are used for the future reconciliation of accounts, as well as
the transfer of information to official accounting records like general
ledgers.

2. Ledger

This is an account or record that is used to store bookkeeping entries

for balance-sheet and income-statement transactions.

3. Cash Receipts Book

This is a specialized journal that is used as the main entry book for
cash receipts and disbursements. This includes bank deposits and
withdrawals.

4. Cash Disbursements Book

This journal is a record that contains an itemization of financial

expenditures businesses make before the payments are posted to the
ledger.

5. Subsidiary Sales Journal

This ledger is used to store different detailed sales transactions. Its

purpose is to remove high-volume transactions from the ledger.

6. Subsidiary Purchases Journal

This journal is used to store purchasing transaction information. Therefore,

the ledger won’t be overwhelmed with high-volume purchasing
transactions.

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Books of Accounts Requirements for Freelancers in the Philippines

Here are the different requirements for freelancers to want to create and
register their books of accounts.

 2 copies of BIR Form 1905

 BIR Certificate of Registration (photocopy)
 Books of account
o General journal
o General ledger
o Cash disbursement journal
o Cash receipt journal

Books of Accounts Requirements for Sole Proprietorships/Services in the

Philippines

For sole proprietors who specialize in selling services, the requirements

include:

 BIR Form 1901 (Application for Registration for Self-Employed and

Mixed Income Individuals, Estates and Trust
 Bound books of accounts for registration or stamping, bound journals
and/or ledgers
 Proof of Payment of Annual Registration Fee for the current year (BIR
Form 0605)

Books of Accounts Requirements for Businesses in Retail/Selling Goods in

the Philippines

The requirements for those who engage in retail business selling goods are
the following:

 BIR Form 1903 (Application for Registration for

Corporations/Partnerships (Taxable/Non-Taxable) Including GAIs and
LGUs
 Bound books of accounts for registration or stamping, as well as
bound journals and/or ledgers
 Proof of Payment of Annual Registration Fee for the current year (BIR
Form 0605)

How often should we File Tax Returns?

All professionals are required to regularly file their tax returns. These will
depend on the types of tax indicated in the BIR Certificate of Registration or
COR. Here’s how often you should file them:

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  Withholding Taxes: monthly and annually
 Value Added Tax: monthly and quarterly
 Income Tax: quarterly and annually

Should you DIY or hire a Bookkeeper?

You’re probably wondering whether it’s best to DIY your bookkeeping

or hire a professional. Different factors can affect your decision.

If your business is still in its early stages, or it’s just a side hustle that
doesn’t involve a huge budget, you can just take the DIY approach.

However, make sure to consult with a professional to help you get

started. This will ensure that you don’t end up finishing a year’s worth of
books that will not be accepted by BIR.

When you DIY your bookkeeping, you can end up saving money, and
even gain better insight into your business’ financials.

On the other hand, it is recommended to outsource a professional if

your business is past the side hustle stage, or if you don’t have time to do
your bookkeeping.

The moment your business picks up, delegating it to a bookkeeper will

make more sense, despite the price tag it comes with. Hiring a bookkeeper
will also give you peace of mind.

There is no exact answer that applies to freelancers and businesses,

so make sure to gauge your financial resources, free time, and preparedness
to learn the basics of bookkeeping, before you make the decision.

Just like other choices for business owners and professionals, it may
require trial and error. In time, you’ll find the best setup for you.

6 Bookkeeping Tips for Entrepreneurs & Freelancers in the Philippines

If you’re like millions of entrepreneurs, poring over spreadsheets may

not be your idea of fun.

However, that is not an excuse to pass up on bookkeeping. Here are some

tips to keep in mind to make this tedious job easier.

1. Always separate your personal and business finances

Co-mingling your expenses may be tempting especially for small
business owners, but never make this mistake if you don’t want to deal with
problems in the future.

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 It’s recommended to open a separate business bank account the
moment you launch your brand.

2. Remember that technology if your friend

Automation will not only save you time, but also effort. The earlier
you start to automate business processes, the more time you will have for
more important things.

You can streamline your bookkeeping if you hate entering data and
reconciling numbers manually.

It is also recommended to use cloud-based software and do your

banking online. This way, everything will be in sync and up to date.

3. Don’t be afraid to seek help

If you want to do your business’ bookkeeping on your own, do not
start right away. Talk to a professional first and ask tips on what software
you can use, and how you can customize it.

4. Perform checkups

A lot of business owners who do their bookkeeping have to deal with

problems when they put off this job for too long.

These problems may come in the form of missed invoices, figures that
don’t add up, or even bounced checks. To make sure your finances are in
order, examine your books weekly or bi-weekly.

It is also recommended to take an in-depth look at your documents

every quarter. This way, you can spot trends and prepare for the future
better.

For example, if you see that your sales are increasing and it’s harder
for you to keep up with the demand, you may want to invest in hiring new
staff or get new equipment

5. Track your expenses

Although you can forecast some expenses, unexpected ones are still
common. However, if you prepare for the unexpected, it will be easier for
your business to keep up.

As much as you can, have a record of all expenses for utilities,

inventory, supplies, and even insurance.

Then, come up with a plan on handling unexpected expenses, big or

small. This will prevent you from being caught off-guard or ending up in
debt.

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6. Remember your deadlines

To avoid cramming, plan ahead and set aside money for your tax bills.
This way, you won’t have to deal with fines because you didn’t pay on time.

Set up reminders months and weeks before your tax payment is due.

Understanding Assets, Liabilities, and Equity When Balancing the Books

Effective bookkeeping requires an understanding of the firm's basic

accounts. These accounts and their sub-accounts make up the company's chart of
accounts. Assets, liabilities, and equity make up the accounts that compose the
company's balance sheet.1

Assets are what the company owns such as its inventory and accounts
receivables. Assets also include fixed assets which are generally the plant,
equipment, and land. If you look you look at the format of a balance sheet, you will
see the asset accounts listed in the order of their liquidity. Asset accounts start
with the cash account since cash is perfectly liquid. After the cash account, there is
the inventory, receivables, and fixed assets accounts. Those are tangible assets.
You can touch them. Firms also have intangible assets such as customer goodwill
that may be listed on the balance sheet.

Liabilities are what the company owes like what they owe to their suppliers,
bank and business loans, mortgages, and any other debt on the books. The liability
accounts on a balance sheet include both current and long-term liabilities. Current
liabilities are usually accounts payable and accruals. Accounts payable are usually
what the business owes to its suppliers, credit cards, and bank loans. Accruals will
consist of taxes owed including sales tax owed and federal, state, social security,
and Medicare tax on the employees which are generally paid quarterly. Long-term
liabilities have a maturity of greater than one year and include items like mortgage
loans.

Equity is the investment a business owner, and any other investors, have in
the firm. The equity accounts include all the claims the owners have against the
company. The business owner has an investment, and it may be the only
investment in the firm. If the firm has taken on other investors, that is reflected
here.

In bookkeeping, you have to balance your books at the end of the year. The
bookkeeper has to keep careful track of these items and be sure the transactions
that deal with assets, liabilities, and equity are recorded correctly and in the right
place. There is a key formula you can use to make sure your books always balance.
That formula is called the accounting equation:

Assets = Liabilities + Equity

The accounting equation means that everything the business owns (assets)
is balanced against claims against the business (liabilities and equity). Liabilities
are claims based on what you owe vendors and lenders. Owners of the business
have claims against the remaining assets (equity).

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Income Statement and Bookkeeping: Revenue, Expenses, and Costs

The income statement is developed by using revenue from sales and other
sources, expenses, and costs. In bookkeeping, you have to record each financial
transaction in the accounting journal that falls into one of these three categories.

Note
The information from a company's balance sheet and income statement gives the
accountant, at the end of the year, a full financial picture of the firm's bookkeeping
transactions in the accounting journal.

Revenue is all the income a business receives in selling its products or

services. Costs, also known as the cost of goods sold, is all the money a business
spends to buy or manufacture the goods or services it sells to its customers. The
Purchases account on the chart of accounts tracks goods purchased.

Expenses are all the money that is spent to run the company that is not
specifically related to a product or service sold.3

An example of an expense account is Salaries and Wages or Selling and

Administrative expenses.

A bookkeeper is responsible for identifying the accounts in which

transactions should be recorded. For example, if the business makes a cash sale to
a customer and your business uses double-entry bookkeeping, you would record
the cash received in the asset account called Cash and the sale would be recorded
in the revenue account called Sales.

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