Bookkeeping for Filipino Freelancers & Small Businesses [Beginner’s Guide]

Last Updated – Apr 24, 2023 @ 6:30 am

A lot of entrepreneurs are intimidated by bookkeeping, but this gives you something you need: important financial insight into the state of your business.

Foregoing bookkeeping is like driving a car with blindfolds. Although the car is still going, you won’t know when you need to pull over, drive slower, or increase your speed. 

Bookkeeping doesn’t have to be hard for small business owners and freelancers. In this guide, we will walk you through bookkeeping basics, why you should prioritize it, and other things you need to know about it. 

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.

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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.

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. 

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. 

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.

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.

Learn More: 8 Tax Saving Strategies in the Philippines

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. 

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.

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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
• 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

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Types of Books for Bookkeeping

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

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. 

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.

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. 

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Different Types of Bookkeeping Methods

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

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. 

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. 

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 Internet Revenue said that there are six books that businesses should maintain regularly. 

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. 

Ledger

This is an account or record that is used to store bookkeeping entries for balance-sheet and income-statement transactions. 

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.

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. 

Subsidiary Sales Journal

This leder is used to store different detailed sales transactions. Its purpose is to remove high-volume transactions from the ledger. 

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
  • General journal
  • General ledger
  • Cash disbursement journal
  • Cash receipt journal 

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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) 

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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)

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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:

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

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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. 

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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.

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.

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. 

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Free Bookkeeping Templates & Samples

To make bookkeeping less intimidating for beginners like you, you can use a reliable template. We’ve gathered some free templates you can use to make this task easier.

Accounts Payable Template by Business Accounting Basics 

This template is great for business owners who want to pay their invoices on time. The data can be sorted by date or supplier depending on which information you want to see. 

Accounts Receivable Excel Template by Excel Data Pro

This ready-to-use template helps you manage customer payments and invoices. All you need to do is add your company name at the top, and you can get started in recording payments.

This template features multiple payment columns so you can record part payments against invoices. 

Excel Bookkeeping Template by Excel Bookkeeping 

This free template is perfect for startups, small business owners, and freelancers. All you have to do is fill out the predefined invoice template and include information like customer, products, and services sold, and invoice date, among others.

You can also change the logo and make adjustments according to your preferences such as when you want to clarify sales terms. 

Top Excel Templates for Accounting by SmartSheets

This resource contains a collection of 13 free downloadable templates to match the needs of your business. Here, you can find the following templates:

• Accounting journal template
• Accounts payable template
• Accounts receivable template
• Bill to invoice template
• Bill of lading template
• Billing statement template
• Cash flow template
• Cash flow forecast template
• Expense report template
• Income statement template
• Payment schedule template
• Simple balance sheet template
• Travel itinerary template

Excel Bookkeeping Templates by Beginner Bookkeeping

This page is an amazing resource for Excel accounting templates, especially for small business owners. Their templates are compatible with OpenOffice, and Excel. Some of the templates you can find here include:

• Excel cashbook template
• Excel cashbook with balance sheet
• Expense form template
• Accounting excel template
• Sales invoice excel template
• Statement of account excel template