Keeping Books of Account is a core requirement for every registered business and self-employed professional in the Philippines. But let’s face it—many taxpayers make costly mistakes that can lead to penalties, audit findings, or worse, criminal tax charges.
Whether you’re using manual, loose-leaf, or computerized books, it’s important to avoid common pitfalls that can trigger red flags during a BIR inspection.
In this guide, we break down the top bookkeeping mistakes and how to avoid them—so you can stay compliant and stress-free.
1. Using Unregistered Books
What’s wrong:
Some businesses start recording transactions before their books are stamped or approved by the BIR.
Why it’s a problem:
Only BIR-registered books are considered valid. Using unregistered books may lead to disallowed deductions or non-compliance penalties.
How to avoid:
For manual books: have them stamped at your RDO before use.
For loose-leaf/computerized: apply for approval using BIR Form 1900 and wait for the Permit to Use (PTU).
2. Backdating or Late Entry of Transactions
What’s wrong:
Recording a month's worth of sales or expenses in one go—especially after the fact—is a common but dangerous shortcut.
Why it’s a problem:
The BIR requires chronological recording of transactions. Inconsistencies or obvious backdating can be grounds for investigation or penalties.
How to avoid:
Record transactions daily or weekly.
Set a regular schedule for updating books and reconciling cash/bank accounts.
3. Altering Entries Without Audit Trail
What’s wrong:
Crossing out or erasing amounts, especially in manual books, or modifying computerized entries without proper logs.
Why it’s a problem:
Altered or overwritten entries violate the BIR’s standards of auditability and transparency. This raises serious red flags during audits.
How to avoid:
Use a single line to correct errors (manual).
In computerized systems, ensure you have an audit trail or version log.
Never use correction tape or white-out.
4. Forgetting to Register New Books When Old Ones Are Full
What’s wrong:
Continuing to write in unregistered books after filling up the original set without notifying the BIR.
Why it’s a problem:
Books must be registered before use, including replacements or continuations.
How to avoid:
Monitor space in your books—register the next volume before the current one runs out.
Submit BIR Form 1905 for manual books or update your PTU (if computerized).
5. Submitting Late or Incomplete Loose-Leaf/Computerized Books
What’s wrong:
Failing to submit printed copies or backup files of loose-leaf or computerized books within 15 days after year-end.
Why it’s a problem:
This could invalidate your bookkeeping method and result in penalties or revocation of your permit.
How to avoid:
Add a reminder in your tax calendar for January 15 (for calendar-year taxpayers).
Prepare PDF copies or printed sets in advance.
Always include a sworn declaration and index of reports.
6. Not Reconciling Ledgers and Tax Returns
What’s wrong:
Your ledger says one thing, but your tax return says another. Inconsistencies between your books and BIR filings are a major red flag.
Why it’s a problem:
It suggests either poor recordkeeping or intentional misreporting—both of which may trigger a tax audit.
How to avoid:
Regularly reconcile your books, journal entries, ledgers, and filed returns.
Use a monthly closing process to check for discrepancies.
7. Missing Supporting Documents
What’s wrong:
Recording entries in your books without attaching invoices, receipts, or payment evidence.
Why it’s a problem:
The BIR requires documentation to support all deductions and claims. Unsupported entries may be disallowed.
How to avoid:
Always file receipts, invoices, ORs, and vouchers alongside your books.
Use folders, envelopes, or digital scanning systems for proper organization.
8. Not Retaining Books for 10 Years
What’s wrong:
Discarding old books and records once they’re “done,” especially physical ledgers.
Why it’s a problem:
The Tax Code requires you to retain books for at least 10 years. If audited for prior years, missing books could lead to penalties or estimates of your income.
How to avoid:
Archive manual books in labeled boxes or cabinets.
For computerized books, store backup copies in the cloud or on external drives.
Summary: Mistakes Checklist
| Mistake | How to Fix It |
|---|---|
| Using unregistered books | Register before first use |
| Late or backdated entries | Record on time, consistently |
| Altering entries | Use audit trails and single-line corrections |
| Continuing old books without registering new ones | Register the next volume early |
| Missing year-end submission (loose-leaf/computerized) | Submit by Jan 15 with sworn declaration |
| Ledger vs tax return mismatch | Reconcile monthly |
| No supporting docs | Keep and organize receipts |
| Discarding books early | Retain for 10 years minimum |
Final Thoughts
Your Books of Account don’t just keep you legal—they protect your business. Avoiding these common mistakes will not only keep the BIR off your back but also give you clear, accurate financial visibility.
The BIR has become stricter about enforcement in recent years, so even small errors can lead to big problems if you’re not careful.
Need help reviewing your books or preparing for a BIR inspection? Get in touch with a licensed accountant or compliance specialist today. We’ll help you get audit-ready—no stress, no surprises.
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