Registration of Contractors Simplified Accounts and Tax Record

October 5, 1972 REVENUE MEMORANDUM CIRCULAR NO. 56-72 SUBJECT : Registration of Contractors Simplified Accounts and Tax Record TO : All Internal Revenue Officers & Others Concerned The use of the Contractors Simplified Accounts and Tax Record prepared by Mr. Felipe B. Ollada, C.P.A., had been authorized by the Acting Secretary of Finance in his 2nd indorsement dated September 29, 1972 to this Office, having been found to conform with the requirements of Revenue Regulations No. V-1 as amended by Revenue Regulations No. V-43. The said contractors simplified accounts and tax record may, therefore, be accepted for registration and used for records purposes, under Section 334 of the National Internal Revenue Code, as amended. ENFORCEMENT All concerned are enjoined to be guided accordingly. cdt MISAEL P. VERA Commissioner of Internal Revenue ANNEX 2nd Indorsement September 29, 1972 Respectfully returned to the Commissioner of Internal Revenue, Manila. It appearing from the draft submitted that the "Contractors Simplified Accounts and Tax Record" prepared and designed by Mr. Felipe B. Ollada, C.P.A. is in accordance with the requirements of Revenue Regulations No. V-1, as amended, otherwise known as the Bookkeeping Regulations, its use for account record purposes under Section 334 of the National Internal Revenue Code, as amended, is hereby approved. PEDRO M. ALMANZOR Acting Secretary Copy furnished: Mr. Felipe B. Ollada ANNEX A 1st Indorsement August 22, 1972 Respectfully forwarded to the Honorable, the Secretary of Finance, the self-explanatory letter dated July 5, 1972 of Mr. Felipe B. Ollada, together with the draft of the Contractor's Simplified Accounts and Tax Record, recommending approval of the request contained therein it appearing that the aforesaid record has been found to conform with the requirements of Revenue Regulations No. V-1, as amended by Revenue Regulations No. V-43. MISAEL P. VERA Commissioner of Internal Revenue ANNEX B July 5, 1972 The Honorable The Secretary of Finance THRU The Commissioner of Internal Revenue Manila Dear Sir: Pursuant to Section 334 of the National Internal Revenue Code, I have the honor to request for the approval of the attached draft of a CONTRACTOR'S SIMPLIFIED ACCOUNTS & TAX RECORD prepared/designed by the undersigned. This record when formally printed will be letter size forty four (44) pages consisting the following: Title page and explanation on how to use the record Form I Record of Daily Transactions for the month of Form II Summary of Monthly Transactions for the Year Form III Inventory of Materials and Supplies Form IV Schedule of Accounts Receivable & Payables Form V Schedule of Depreciation of Assets Form VI Yearly & Monthly Profit & Loss Statements Form VII Comparative Balance Sheets/Statement of Net Worth Form VIII Schedule of Income Producing Properties Memorandum (blank space) In passing, please allow us to state that the Format/style of this CONTRACTOR'S SIMPLIFIED ACCOUNTS & TAX RECORD will be similar to the seventeen (17) different simplified sets of bookkeeping records previously approved by the Department of Finance. Because of the consistent demand for this particular kind of record specifically designed for the use of Contractors, its early approval is earnestly requested. Yours very respectfully FELIPE B. OLLADA OFFICE OF THE COLLECTION AGENT CONTRACTOR'S SIMPLIFIED ACCOUNTS & TAX RECORD This Contractor's Simplified Accounts & Tax Record is exclusively designed to provide an accurate record for the daily transactions of contractors who could not afford the services of bookkeepers/accounts. It will also aid them to cooperate with the government in upholding tax laws, save time and trouble in filing their income tax returns at the end of the year. This one-book-set of record is brief and streamlined providing for all the necessary information that should be recorded regarding the business transactions of any contractor using this system to control sales, costs and expenses and show the results of operations either on "cash" or "accrual" method of accounting. When properly kept, it will readily furnish all facts about the financial position of a contractor needed during and at the end of the year and which will be the only source of reliable information in the preparation of their income tax returns. It will also be the only reliable defense against unreasonable tax assessments of the government. This one-book-set-of-accounting records could easily be kept by contractor and/or members of their families without previous knowledge of bookkeeping. However, if some difficulties are encountered, it is suggested that a reputable CPA be consulted how this record book should be kept, closed and/or to assist in the preparation of annual income tax returns to be filed on or before April 15th every year. Every contractor should bear in mind that their records are their everyday tools in the successful operations and management of his/her business. Such records must be simple yet adequate and sufficient to give peace of his/her mind. This Contractor's Simplified Accounts & Tax Record tells you the financial story of your business and quickly. It is only the medium through which the Government (your Silent Partner) may know how you get along in your business which must be reported in your income tax returns on or before April 15th every year. There will be no way therefore, by which you could understand each other, other then by keeping reliable and complete records The Contractor's Simplified Accounts & Tax Record. The business of a contractor is very delicate and risky. A contractor is either a general contractor or sub-contractor. In both cases, he has to make a very careful estimate on every job undertaken to establish the ratio of cost and profit. This is necessary to ascertain the cost and profit on portion of jobs partially completed especially at the each of the year. MORE REASONS WHY KEEP THIS CONTRACTOR'S SIMPLIFIED ACCOUNTS & TAX RECORD Because every contractor wants to: 1. Comply with government requirements regarding the use of simplified sets of bookkeeping records (Section 334 of the Tax Code, as amended by Rep. Act No. 658.) 2. Analyze his contracting business: ( MISSING PAGE 3 IN BIR FILES ) Circular No. V-215, June 27, 1956). Contractors are required to file an individual income tax return on or before April 15th of every year as required by Section 45 of the Tax Code when their GROSS ANNUAL INCOME is P1,800.00 or more. Income tax in excess of P500.00 or more may be paid twice, one-half upon filing on or before April 15th and the other on or before August 15th. All entries in this record book must be supported by receipts, invoices, vouchers or any evidence showing details of each transaction. This Contractor's Simplified Accounts & Tax Record must be preserved for a period of at least FIVE YEARS from the date of the last entry in compliance with Section 337 of the Tax Code, as amended. SALES INVOICE OR RECEIPT Before sales invoices may be printed, a draft of same must be submitted for approval to the Commissioner of Internal Revenue stating the number of booklets (pads) to be printed and serial numbers to be used. Contracts for services rendered or jobs contracted valued at two pesos or more, must be covered by a commercial invoice or receipt serially numbered at least in duplicate, showing among other things their names, or styles, if any, and address of the purchaser, provided that sales of fifty pesos or more, the invoice shall further show the name or style, if any, and address and residence certificate number, date and where issued of the purchaser (Bookkeeping Regulations, Revenue Regulations No. V-1). FINES AND PENALTIES Contractors are also reminded of the penal provisions of the Tax Code for failure to make a return or supply information, making false or fraudulent statement to evade the payment of taxes punishable by a fine of not more than P4,000.00 or by imprisonment of not more than two years or BOTH plus an increase of the tax by 25% to 50% as follows: "Section 73. Penalty for failure to file return or to pay tax Any one liable to pay the tax, to make a return or to supply information required under this Code, who refuses or neglects to pay such tax, to make such return or to supply such information at the time or times herein specified in each year, shall be punished by a fine or not more than two thousand pesos or by imprisonment for not more than six months or both. Any individual or any officer of any corporation, or general copartnership (compania colectiva), required by law to make, render, sign or verify any return or to supply any information, who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this Code to be made, shall be punished by a fine of not exceeding four thousand pesos or by imprisonment for not exceeding ONE YEAR or BOTH." Other pertinent provisions of the Tax Code as amended providing, penalties for making false, or fraudulent or fictitious entries in the books of accounts, or records is penalized by a fine of not exceeding P5,000.00 or by imprisonment of not more than FIVE YEARS or BOTH. And any variance of entries in the books and accounts kept by him in the dialect with the books of accounts kept either in English or Spanish shall be FINED in a sum of not less than P2,000.00 or more than P10,000.00 or imprisonment of not less than two years nor more than six years or both provided as follows: "Sec. 352. Violation of other provisions of this Code or regulations in general A person who violates any provision of this Code or any regulation of the Department of Finance made in conformity with the same for which delinquency no specific penalty is provided by law, shall be punished by a fine of not more than three hundred pesos or by imprisonment for not more than six months or both." "Sec. 355. Making false entries, failure to keep required books, etc . or writing false or fictitious names in books or records . Any persons who knowingly shall make a false entry or enter a false or fictitious name in the books or records mentioned in sections three hundred thirty-four and three hundred thirty-five of this Code or who shall abet or aid in any manner in the making or writing thereof; shall be fined in a sum of not less than five hundred pesos nor more than five thousand pesos or imprisonment for a term of not less than six months and one day nor more than five years, or both." "Any person who fails to keep the books or records mentioned in Section 334 in a native language, English or Spanish or to make a true and complete translation as required in Section 336 of this Code or whose books or records kept in a native language, English or Spanish are found to be at material variance with books or records kept by him in another language, shall be fined in a sum of not less than two thousand pesos nor more than ten thousand pesos or imprisoned for a term of not less than two years nor more than six years or both." HOW TO USE THIS RECORD BOOK In using this Contractor's Simplified Accounts & Tax Record consider that your contracting business as a separate business unit for which income, cost and expenses should be properly accounted for and accurate financial results prepared at the end of the year. This set of record is sufficient to record all transactions of a contractor during the year to show the results of operations during the period and financial position at the end of the year. This record may be kept either in CASH or ACCRUAL basis. FORM I RECORD OF DAILY TRANSACTION FOR THE MONTH AND DEFINITION OF ACCOUNTS This is the principal accounting record of original entry wherein the total daily transactions of sales and expenses of an individual contractor are recorded. This Form I is a combined (1) journal, (2) cash receipts and disbursements, (3) purchase book, and (4) sales book. The columns to the extreme right and left of this Form I indicate the dates of the month. Be sure to summarize your whole day's transactions before recording them daily. This will really simplify your bookkeeping. Always begin with a new page of this form to start recording the daily transactions for the following month as indicated. Immediately after all the transactions for the month have been recorded, add all the columns as indicated and post the totals to their corresponding column/account in Form II Monthly Summary of Transactions for the Year. SALES OR REVENUE Columns 1 and 2 Charge these columns/accounts with the price of jobs/contracts received and completed. You may classify your income/revenue into two classes, if desired. Columns 3 and 4 ACCOUNTS RECEIVABLE . (What other owe us). Materials sold and services rendered on account should be shown and posted under column 3 while payments received for these materials and services rendered previously made on account shall be shown under column 4. The difference of these columns represent your accounts receivable at the end of the period or month. Column 5 Write under this column a brief explanation of the daily transactions made. Columns 6, 7 and 8 CASH RECORD . This section show at a glance the status of the cash account of a contractor. In other words, these columns take the place of a Cash Book. Enter all "Cash Received" from cash sales, cash received on account and all other cash received under Column 6 and all "Cash Paid Out" under Column 7. Column 8 readily shows the cash balance on hand at any time after the total transactions of each day has been recorded and entered into this record book which is the difference of Column 6 minus the amount shown under Column 7. The balance of the Cash on Hand under Column 8 should be carried forward and posted to its respective column for the next month following. Do this at the end of every month. Columns 9 and 10 ACCOUNTS PAYABLE . (What we Owe Others). Enter all bills received which are due and payable at some future time under Column 10 while all payments made on accounts payable shown under Column 9. The difference of these columns represent the balance of your Accounts Payable at the end of the period. Columns 11 and 12 PURCHASES . Enter under these columns all purchases of materials intended for the use in your jobs contracted. These purchases may be classified under two categories, if desired. DISTRIBUTION OF EXPENSES Column 13 SALARIES & WAGES . This column/account should include the amount for salaries and wages of employees, including wages of helpers, etc. paid and/or due to them. Column 14 RENT, LIGHT & WATER . Charge this column/account with the amount paid for rent, light and water used. Column 15 TAXES AND LICENSES . Charge to this column/account for the amounts paid for business tax, residence certificates, sales tax and all kinds of taxes or licenses paid and/or payable to the government BUT excluding income tax. Column 16 SUPPLIES . Charge this column/account with the cost of materials and supplies used. Column 17 REPAIRS & MAINTENANCE . Charge this column/account with the cost of repairs and maintenance of machines, motor equipments, fixtures, etc. Column 18 TRANSPORTATION . This account/column shall include taxi and bus fares, etc. of the owner and employee incurred in connection with the business including expenses for freight, trucking and delivery of merchandise. Column 19 MISCELLANEOUS . All expenses such as postage stamps, stationery, office supplies, etc. purchased for the use of your business, entertainment, and other expenses that may not be classified under any of the columns from Columns 13 to 18 inclusive should be charged to and classified under this column as Miscellaneous expenses. Columns 20, 21, 22 & 23 OTHER PAYMENTS . Charge these accounts with money withdrawn for personal requirements, cost of assets or property acquired, payment of income tax assessments and payments of loan under their respective column. These disbursements are not allowable deductions for income tax. FORM II SUMMARY OF MONTHLY TRANSACTIONS FOR THE YEAR Immediately after the end of each month, transfer and post all the different totals shown in Form I Record of Daily Transactions for the Year to their respective columns as indicated. The column number of each form are the same to facilitate posting and transfer of monthly totals from Form I to Form II and to avoid mistakes. Repeat this operations without delay after the last day of every month. After posting the December accounts to this summary (Form II) add the amounts listed under the different columns of this form (Summary of Monthly Transactions for the Year) and prepare financial statements for the year as explained elsewhere. QUARTERLY TOTALS LICENSES & MONTHLY PERCENTAGE TAX Immediately after the end of each quarter, refer to your Form II and add all the different columns/accounts and show the totals corresponding to the quarter just ended. The total sales made during the quarter should be reported to your Municipal/City BIR Collection Agent to determine the amount of quarterly license that should be paid. The 3% percentage tax on your gross sales or gross income shall likewise be reported and payable on or before the 20th of every month to the Collection Agent of the Town/City where your business is located. FORM III INVENTORY At the end of the year, take a physical inventory of materials and supplies on hand and unused at 31st December listing each group or class separately in Form III. Complete the information required of this inventory form. This will enable you to determine the result of your business at the end of the year. For quarterly profit and loss purposes, physical inventory should also be taken but use separately ruled bond paper similar to Form III. FORM IV LIST OF OUTSTANDING ACCOUNTS RECEIVABLE AND PAYABLE To control Accounts Receivable and Accounts Payable at the end of the year, Form IV is provided wherein to list them at December 31st every year. Be sure that only those outstanding ACCOUNTS RECEIVABLE that could be collected and ACCOUNTS PAYABLE that are bonafide and substantiated with receipts and vouchers should only be listed in this schedule. The total accounts receivable should equal to the difference of Column 3 minus Column 4 LESS DEBTS WRITTEN OFF while the total accounts payable should equal also to the difference of Column 10 minus Column 9 shown on Form II respectively. These balances should be shown in their respective item in the balance sheet (Form VII) at the end of the year. FORM V SCHEDULE OF DEPRECIATION There are several things to consider in the preparation of this Form V, namely, the individual asset subject to depreciation, the original cost, estimated useful life, and the depreciation. The depreciation which is the decline in the value of assets due to wear and tear, obsolescence and inadequacy computed yearly or quarterly and charge against operations (Profit and loss Statement) usually in the form of percentage, fixed in advance and based on the original cost and estimated useful life of the property. The other is the proper listing of all properties at the beginning of the year including acquisitions during the year subject to depreciation less value of asset retired. The "Net Book Value" is the difference between the "Cost" less "Total depreciation". All the other information necessary to accomplish Form V could easily be made by filling in the blanks required for each item of asset listed therein. This must be done immediately at the beginning or after the end of the period to determine the depreciation expense chargeable during the year or each quarter. FORM VI QUARTERLY AND YEARLY PROFIT AND LOSS STATEMENT Immediately after taking physical inventory and after computing the depreciation of assets, prepare a profit and loss statement (Form VI) to determine how much profit was realized (or loss sustained) during the quarter or year. The sources of the different amounts necessary for the preparation of this statement is shown and indicated therein. The accounts shown in the profit and loss are nominal accounts. The amount of Bad Debts to be written off should be the total of those accounts that could no longer be collected and not included in the Schedule of Accounts Receivable, Form III. Compute also the percentages of the different items in the income statement for the year using the total revenue or income as DIVISOR for each individual item shown in the profit and loss statement as indicated. FORM VII BALANCE SHEET AND BALANCE SHEET ACCOUNTS Balance sheet accounts are "real accounts" (permanent) as distinguished from "nominal accounts (temporary) or profit and loss accounts. The real accounts when summarized in Form VII of this record book, represents the financial condition of the business at any given date or what is popularly known as balance sheet. The yearly preparation of a balance sheet is very indispensable. It is the only basis whereby one can ascertain whether he/she is financially progressing or getting set-back from year to year. SPECIFIC BALANCE SHEET ACCOUNTS AS USED IN THIS SYSTEMS ASSETS (What We Own) 1. CASH This account includes all cash owned by the proprietor which may be classified into (a) cash on hand and (b) cash in bank, if bank account is maintained. 2. ACCOUNTS RECEIVABLE All amounts of money due to the proprietor or collectible in the ordinary course of business shall be shown under this heading. The amount is the difference of Column 3 minus Column 4 less whatever accounts could no longer be collected. Refer to Form IV. 3. INVENTORIES This account shall include the cost (or market whichever is lower) of materials and supplies remaining unused at the end of the year. It shall also include the cost of unused supplies, etc. Refer to Form III. 4. FURNITURE & FIXTURES Furniture and fixtures used exclusively in the business of the proprietor shall be included and shown under this account. 5. MACHINES & APPLIANCES Sewing machines, apparatus, machine attachments, electric motors, etc. used in the shop shall be shown under this account. LIABILITIES (What I Owe Others) 11. ACCOUNTS PAYABLE All amounts owed by the proprietor on open accounts, not covered by notes, mortgage shall be included and shown under this account. 12. NOTES PAYABLE All amounts owed by the proprietor on notes shall be included and shown under this account. 13. LOANS/MORTGAGE PAYABLE All money borrowed or mortgage contracted shall be charged to this account. FORM VIII SCHEDULE OF INCOME PRODUCING PROPERTIES Section 334 of the Tax Code as amended by Republic Act No. 658 provides among other things the submission of a Schedule of Income Producing Properties to accompany annual income tax returns. On this schedule should be listed all income producing properties owned by the taxpayer showing (1) the kind and brief description of each property whether it is fishpond or riceland, or coconut plantation, abaca, etc. (2) location of property, (3) tax declaration number, (4) transfer certificate of title number (Torrens title). (5) showing the quantity harvested and the unit price of produce, and (6) the total money value of gross produce-income during the year. If the properties have been worked out by tenants, (7) the sharing of the produce between the proprietor and tenant should also be shown. The produce shall be valued at the prevailing prices at the time of partition or harvest by the landowner. It is important that the total value received from these income producing properties should equal to the total income reported from this source in the annual income tax return of the preceding calendar year by the owner/taxpayer. INCOME TAX RETURN After the preparation of the financial statements for the year (Form VI and Form VII) found at the end of this book, prepare a Return of Annual Net Income of Individuals (BIR Form No. 17.01) for the preceding calendar year. The Return of Annual Net Income of Individuals should be filed every year on or before April 15th with the Commissioner of Internal Revenue or to the Collection Agent of the City/Town where the operator/taxpayer resides on or before April 15th. Schedule "B" of the income tax return is reproduced on the inside back cover of this record book. It illustrates how it is repaired and shows where to obtain the different amounts from Form VI to be filled in this Schedule "B" to their respective lines to complete the income tax return required by the government. It pays to consult a Certified Public Accountant about your tax planning and in the preparation of your income tax return for the purposes of legally ascertaining your correct tax liability. Remember that TO AVOID IS LEGAL but TO EVADE IS ILLEGAL and in this regard the Supreme Court of the United States said: "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them by means which the law permits, cannot be doubted. (Gregory vs. Helvering, 293 U.S. 465).