Tags: BIR books of accounts requirements, keeping of accounting records Philippines, Section 232 to 235 NIRC, bookkeeping compliance BIR, BIR audit books and records
In the Philippines, the importance of proper bookkeeping cannot be overstated—especially when the Bureau of Internal Revenue (BIR) comes into the picture. The National Internal Revenue Code (NIRC) of 1997, as amended, specifically Sections 232, 233, 234, and 235, outlines the legal backbone for the keeping of books of accounts and records. For businesses, professionals, and even non-profit organizations, compliance with these sections is not just a matter of good practice—it is the law.
This blog aims to provide a clear understanding of what these sections require, their purpose, and how they affect taxpayers. Whether you're a sole proprietor, a corporation, or an accountant guiding your clients, this guide will help you align your bookkeeping practices with Philippine tax laws.
Section 232: Keeping of Books of Accounts
Section 232 mandates the keeping of books of accounts and other accounting records for all individuals or entities engaged in trade, business, or the practice of a profession. These records must reflect the taxpayer's true income and expenses.
Who is Required to Keep Books?
The section identifies the following:
- Corporations, Companies, Partnerships, or Persons—engaged in trade or business or the practice of a profession.
- Large Taxpayers and VAT-registered Persons—must keep audited books of accounts.
- Those with Quarterly Gross Sales/Receipts over P150,000—are required to maintain a simplified set of books.
What Books Must Be Kept?
Taxpayers must maintain:
- Journal and Ledger (or their equivalents)
- Subsidiary books (such as Cash Disbursement Book, Cash Receipt Book, etc.)
- Invoices and Official Receipts
- Supporting documents (e.g., vouchers, contracts, and correspondence)
These must be kept in the Philippines, either in manual, computerized, or loose-leaf format—but all formats require BIR authorization or registration.
Format and Language
Books and records must be kept in English or Filipino, and all amounts must be expressed in Philippine Peso.
Section 233: Subsidiary Books and Other Accounting Records
Section 233 allows taxpayers to keep subsidiary books and other accounting records as needed in their business operations.
Flexibility and Customization
While Section 232 mandates the minimum requirement, Section 233 provides flexibility. Businesses may maintain additional records such as:
- Accounts Payable and Accounts Receivable Ledgers
- Inventory Books
- Payroll Registers
- Bank Reconciliation Statements
This section is especially important for larger enterprises that require more granular tracking of financial information for management, audit, and tax purposes.
Modern Accounting Systems
Under this section, computerized accounting systems (CAS) and loose-leaf books are allowed provided they are registered with the BIR. It is crucial to obtain a Permit to Use (PTU) for CAS or submit the loose-leaf format for approval.
Section 234: Language and Manner of Keeping the Books of Accounts
This section governs the language and presentation of accounting records. While Section 232 requires the books to be in English or Filipino, Section 234 adds clarity to how this must be executed.
Acceptable Language
Books of accounts may be:
- Kept in a native dialect, English, or Filipino
- But if in a foreign language, a true and complete translation must be made available to the BIR upon demand.
Electronic Books
In today’s digital world, many businesses use accounting software or ERPs. Section 234 implicitly supports these tools as long as:
- They are compliant with BIR guidelines
- Proper documentation, translations, and back-ups are maintained
Non-compliance with the manner or language of book entries can result in disallowance of expenses or rejection of books during audits.
Section 235: Examination of Books and Records
One of the most critical provisions is Section 235, which grants the BIR the authority to examine the taxpayer’s books and records.
BIR's Right to Audit
The BIR may examine or inspect books and records once every taxable year, except in certain cases such as:
- Fraud
- Irregularity or mistake
- Taxpayer's request for reinvestigation
- Verification of compliance with withholding tax laws
- Capital gains tax audits
- Tax refund or tax credit claims
Retention Period
Books of accounts must be kept for ten (10) years, and the last five years must be readily accessible. This is critical during audits or when legal disputes arise.
Time and Manner of Examination
The BIR must conduct the examination during office hours and at the taxpayer's place of business, unless otherwise agreed upon. They must also issue a Letter of Authority (LOA)—a prerequisite for any examination to be legally valid.
Compliance Tips for Businesses and Professionals
Whether you're a sole proprietor, partnership, or corporation, here are practical tips to stay compliant with Sections 232 to 235:
1. Register Your Books and System
- Register all manual books (e.g., Journal, Ledger, etc.) annually with the BIR.
- Secure BIR approval for loose-leaf or computerized accounting systems.
2. Maintain Proper Documentation
- Keep receipts, vouchers, contracts, and bank statements organized.
- Ensure proper substantiation of all expenses.
3. File and Renew Promptly
- Renew permits for CAS or loose-leaf systems before expiration.
- File your books and BIR-required reports on time.
4. Conduct Internal Audits
- Periodically review your own books to ensure accuracy and compliance.
- Consider hiring external auditors if you're a large taxpayer.
5. Train Your Staff
- Ensure your accounting and finance team understands the requirements.
- Educate them on proper documentation, filing, and BIR communication.
The Cost of Non-Compliance
Failure to keep proper books of accounts can result in:
- Penalties and surcharges
- Disallowed deductions
- Potential criminal liability
- Increased likelihood of audit
Worse, non-compliance may lead the BIR to impose compromise penalties or closure orders under the Oplan Kandado Program.
Conclusion: Accountability Is Good Business
In the realm of taxation, good recordkeeping is not optional—it is a requirement backed by law. The NIRC’s Sections 232 to 235 emphasize the government’s desire for transparency, accuracy, and accountability. These are not merely administrative burdens—they protect both the taxpayer and the State.
So, whether you’re managing a small online business, a growing corporation, or a professional practice, make it a habit to write it right. Doing so will save you from unnecessary stress, cost, and conflict with the tax authorities.
When your books are in order, your business is in order—and that is the foundation of sustainable, ethical, and compliant entrepreneurship in the Philippines.
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