Reasons Why Preserving Accounting Records is Helpful for the Business
With the Bureau of Internal Revenue (BIR) Revenue Regulations (RR) number 17-2013, companies are now required to preserve their accounting records for at least 10 years. The BIR updated this from the previous 3 years record retention rule. If there are many issues on how many years companies should hold on to their records, then it must be important.
This article presents 5 reasons why preserving accounting records would be helpful for the business.
Preserving Accounting Records: Guidelines and Why We Should Do It?
BIR requires that all relevant accounting records should be securely preserved. BIR emphasizes that all records should be complete, unchanged, and undamaged. Here are the specific accounting records recognized in RR 17-2013.
- Book of Accounts
- Subsidiary Books
- Other Accounting Records
Companies should retain and preserve their records for at least 10 years starting from the day of filing them for tax purposes.
Further, BIR recognized the prevalence of digital records and thus later issued in RR 5-2014. This allows companies, who use digital storing, to keep their physical records for at least five years. This means that for the first 5 years after filing those records, companies should retain physical records, or both physical and digital records. Thereafter, the company may opt to store only in digital form. Nevertheless, records should still be intact for at least 10 years.
Moreover, BIR provided minimum controls on how these records should be preserved. This would ensure that the records would be useful and accurate for later use. Internal Revenue officers have the authority to inspect and examine books on reasonable grounds. If the agency deems that the records are not kept or impaired due to negligence, you can be fined for penalties.
Why are there so many strict rules to ensure security in preserving accounting records? Here are 5 reasons why.
1. To Monitor Business Growth
Information from sales reports, purchase details and financial reports can show a picture of the company’s growth. By retaining these records, you can monitor your activities and progress. It is extra motivation for owners, investors, creditors and staff to see the business on positive growth. It means that their investments are working and their efforts are paying off.
2. To Make Sound Decisions
Historical data is important in making relevant decisions. By preserving accounting records, you can better assess your company’s condition. For example, you can observe if your strategy on a product line is working by gathering your records and plotting them in graphs. If your sales on a new product is not working as well as the old one, you can look into your records and compare. You can look into your records to look for details when assessing and making decisions on a specific or overall scale.
3. To Trace Income Sources
A business can benefit from many different opportunities. Keeping records is important to track these sources of income. You can come up with strategies to nurture these opportunities. For instance, you see that one of your products is selling better than the others, you can send out questions to your customers on how to better deliver the product to them.
4. To Track Tax-deductible Expenses
Business taxation is a generally complicated matter in itself. There are instances when tax liability or benefit is distributed over a number of years. Therefore, you need to preserve your accounting records to track taxation. You need prior year’s accounting records to know how much of your outstanding tax has already been paid.
5. Evidence in Legal Actions and Disputes
BIR can make mistakes too. If you think that your tax liability should not be as big, you can dispute that. And you’ll need your accounting records to prove that your claim is correct.
Moreover, legal proceedings would prove to be very difficult without records backing you. By preserving your accounting records, you are secured and protected because your evidence is available and safe.
You Can’t Do It All on Your Own- Hire a Team of Experts!
Are you having issues with managing your accounting records? 3E Accounting is here to help. Our team of experts specializes in financial statement compilation. Further, we can assist you in managing your business to grow. Contact us today to know more.