ACCOUNTING AND BOOKEEPING SOP

INTRODUCTION

This section covers the Accounting and Bookkeeping procedures of the Company.

Companies need a way to determine the financial health of its business operations
because no company can become sustainable without earning a profit in the long
run.

But before financial statements or reports can be made, the Company must first
ensure that all sales and expenses are being recorded completely and accurately.
In addition, all expenses must be recorded in their proper accounts to enable
financial analysis later on.

Thus, this is the role of this manual.

COVERAGE

This Simplified Standard Operating Procedure (SOP) covers the following key
areas:

1. Book of Accounts – including Cash Receipts Book, Cash Disbursements

Book, General Journal, General Ledger, and Subsidiary Ledgers

2. Bookkeeping – including daily recording, month-end procedures, and

check disbursement.

3. Bank Reconciliation – an add-on process to ensure that your financial

statements are accurate by taking into consideration the outstanding
checks, deposit in transit, debit/credit memos, etc.

4. Chart of Accounts, including their definition, for the Company assets,

liabilities, stockholder’s equity, revenue, and operating expenses.

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BOOK OF ACCOUNTS

PURPOSE

 To record the transactions of the Company chronologically.

 To be the basis for all accounting reports generated by the Bookkeeper for
management and enable the Company to comply with government
regulations.

 The Book of accounts can be purchased from any bookstore and stamped
by the Bureau of Internal Revenue.

CASH RECEIPTS BOOK

This is the book of original entry used to record receipt of sales/revenues of the
Company. The source documents for these transactions are official receipts or
the monthly remittance / revenues reports generated by the Company.

Internal Control over Cash Receipts:

 Separate cash handling from record keeping.

 Record cash receipt on a timely basis.

 Issue official receipts even if digitally done.

 Have monthly bank reconciliation prepared by employees not responsible

for the custody of cash or issuance of checks. The completed
reconciliation should be reviewed promptly by an appropriate official.

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Cash Receipts Summary

 Cash Receipts Summary is the recapitulated data of postings done in the

Cash Receipts Book. This report may be generated by the Bookkeeper on
a daily, weekly, or monthly basis. Considering the nature and volume of
transactions, the Bookkeeper may prepare this report on a monthly
basis.

 This report will serve as source document for posting in the General
Ledger.

CASH DISBURSEMENTS BOOK

A journal entry used to record all disbursements, expenditures or payments

made by the Company. Source documents for entries are check vouchers. Cash
Disbursements should be made only for authorized purposes and must be
properly recorded.

Cash Disbursements Summary

 Same as the Cash Receipts Summary, this report summarizes the entries
recorded in the Cash Disbursement Book.

 For reporting purposes, the Bookkeeper shall prepare this report on a

monthly basis. The entries shall be posted to the General Ledger.

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GENERAL JOURNAL

Transactions that do not occur with sufficient frequency are recorded in the
general journal. Source document for recording is the journal voucher.

Any business following Accrual Method of Accounting (recognizing income and

expenses at the time they were earned and incurred) shall post journal voucher
entries to the General Journal.

GENERAL LEDGER

This journal summarizes all the transactions recorded in the above-mentioned

books / journals.

SUBSIDIARY LEDGER

Books or journals may be opened from time to time to maintain individual

record of transactions in any of the above-mentioned books/ journals. The
following could be opened as subsidiary ledger for the Company.

 Sales Journal

 Purchases Journal

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BOOKKEEPING

DAILY RECORDING

It will be the policy of the Company to undertake daily recording of financial

transaction due to the following reasons:

 Business transactions take place every day.

 Some financial records need to be updated daily.

 Recording transactions daily enables personnel to record accurately

circumstances surrounding the transaction.

END OF THE MONTH PROCEDURES

At the end of the month, the following procedures are undertaken to facilitate
preparation of reports required by Management.

 Recording of Depreciation / Amortization

Fixed Assets depreciation should be allocated to represent amount of

replacements.

Amortization should also be considered to cover specific expenditures

like franchise fee, leasehold improvement, and other pre-operating
expenses.

1. Computation

Straight Line Method is adopted.

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2. Depreciation

Annual/Yearly Depreciation = Cost of Fixed Assets

Estimated Life in Years

Monthly Depreciation = Annual/Yearly Depreciation

12 Months

3. Amortization

Annual/Yearly Depreciation = Franchise Fee

10 years

Monthly Amortization = Annual /Yearly Amortization

12 Months

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CHECK DISBURSEMENT VOUCHERS

PURPOSE

 To ensure the proper, complete and timely recording of payment to the

authorized suppliers.

 Documents all fund releases from the Company.

GUIDELINES

1. This form covers payment of all authorized deliveries of goods and

services by suppliers.

2. Pre-numbered disbursement vouchers shall be used to record payment of

the Company’s payables.

3. Only original documents (charge invoice/ statement of account / delivery

receipts / purchase order, etc.) shall support check voucher payments.
This is to avoid double billing by suppliers.

COPY DISTRIBUTION: (2 copies)

 Original copy – President’s office (Master File)

 Duplicate copy –Individual Folder File (Per Supplier)

PERSON RESPONSIBLE:

Bookkeeper / Accountant

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PROCEDURES

1. The Bookkeeper-Accountant receives the Authorized Supplier’s Billings

with its supporting documents. He / She checks its completeness and
authenticity and accepts original documents only to avoid double
payment.

2. He / She interprets and properly classifies the charges in conformity with

the branch current Chart of Accounts.

3. He / She prepares the Check Voucher in two (2) copies, indicates the due
date of the obligation and attaches the supporting documents and signs
on the portion “Prepared by”.

4. He / She prepares the check once the voucher and supporting papers
are double-checked as complete and accurate.

5. Forwards the voucher and check to the President for his/ her approval
and signature.

6. When duly signed, the check and the check voucher are given back for
check releasing.

7. Signed checks are released according to the schedule.

 The payee signs on the “Payment Received By” portion of the Check
Voucher to signify receipt of the Check and issues an Official Receipt.

 Bookkeeper stamps ‘PAID” all check vouchers and attachments to

avoid double payment.

 The payments are recorded in the Cash Disbursement Book.

 The Bookkeeper files the original copy of the check disbursement

voucher together with the supporting documents and the Official
Receipts / Provisional Receipts issued by the Payee.

 For cancelled checks, original entries on the check voucher should

be reversed.

 Check cancellation calls for corresponding check voucher

cancellation. All CVS should be marked as “CANCELLED”.

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CHECK VOUCHER
Date
Paid to No.
Address

PARTICULARS AMOUNT

TOTAL P

Received from the amount of pesos only

(P ) in full / partial payment of the amount described above.

Approved By: Received By:

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BANK RECONCILIATION

BANK RECONCILIATION

Preparation of the Bank Reconciliation Statement on a monthly basis enables

the Management of the Company to ascertain that:

 The cash balances as shown in the Balance Sheet were actually on hand
or deposited with banks at the balance sheet date.

 The cash balances are properly presented in the balance sheet.

The following items are to be considered in preparing this report:

1. Book Reconciling Items

 Credit memos – are bank credits not yet taken up or debited per
book by the Company.

Examples:

 Direct Fund Transfer by clients and cash deposit of cashier of

the Company.

 Interest income earned by the Company.

 Debit Memos – are bank debits not yet taken up or credited per
book.

Examples:

 Bank Charges

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 Authorization to the bank by the President to settle its financial

obligations to suppliers / creditors thru fund transfers between
their banks.

2. Bank Recording Items

 Deposits in Transit – are revenues proceeds by the Company

already recorded in the Cash Receipts Book as deposits but not yet
credited by the Bank.

 Outstanding Checks – are checks prepared by the Company

already recorded in the Cash Disbursement Book as released but
not yet debited by the Bank.

3. General Policies in Preparing the Reconciliation

 To facilitate immediate recognition of irregularities, Bank

Reconciliation should be prepared monthly.

 Preparation of Bank Reconciliation should be done immediately

upon receipt of the Bank Statements.

 Reconciliation should be prepared by persons not recording or

handling cash, or signing checks to ensure an independent check
on these activities.

 Adjustments, if any, should be recorded in the books immediately.

 The sequence of check numbers should be checked when

reconciling Bank Accounts to ensure that all checks are accounted
for.

 Checks released should be examined by the employee reconciling

the Bank Account as to date, payee’s name and endorsement as a
safeguard against checks fraudulently issued or cashed.

 All deposit slips are used to check on actual deposits reflected in

the Bank Statements.

 The Bank Reconciliation Summary Report is submitted to the

President for review and notation.

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4. General Procedures in Preparing the Reconciliation

 Prepare two-way bank reconciliation by determining the Balance

per Book and the Balance per Bank for the month.

 Add to the bank balance the Deposits in Transit.

 Deduct from the bank balance Outstanding Checks.

 Check details of the bank credits and add them up to the book
balance.

 Identify bank debits or charges and deduct them from the book
balance.

 Add (Deduct) reconciling items that affect either or both the

book/bank balances.

 Prepare adjusting entries for all book reconciling items so that they
will not appear again on the Bank Reconciliation Statement next
month.

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BANK RECONCILIATION STATEMENT

FOR THE MONTH OF _____________

BANK BOOK

Unadjusted Balances, month of ____________ xxx

Add: Deposit in Transit xxx

Bank Credits Xxx

Less: Outstanding checks (xxx)

Bank Debits (charges) ( xxx )

Add (deduct) Reconciling items xxx (xxx)

Adjusted Balances, month of ______________ xxx Xxx

Prepared by: __________________ Checked by:

Bookkeeper President

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CHART OF ACCOUNTS

The CHART OF ACCOUNTS is designed to show the general ledger of accounts, as

they will appear in the financial statements. Numerical coding has been provided
for each individual account for easy reference.

PROFIT
CENTER
CODE ACCOUNT TITLE ACCOUNT DESCRIPTION

BALANCE SHEET

100 ASSET

101 CURRENT ASSETS

101-1 Cash in Bank The balance of Cash in Bank account
represents amount of cash on deposit with
the Bank. A separate account should be set
up for each bank.

101-2 Petty Cash Fund The Petty Cash Fund account represents
cash fund set aside for paying small
expenses for which payment by check
would be impractical. The size of the fund
should be sufficient for a week’s
requirement. Initially, the fund may be set
at Php. ____ and subsequently
increased or decreased depending upon the
needs of the Outlet.
101-3 Change Fund
Represents fund set up for Loose Change
purposes, initially at _______
101-4 Accounts Receivable –
Trade Receivable from customer.

101-5 Accounts Receivable – Represents SSS reimbursements advanced

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Others by the company; personal advances to

employees and others not related to the
normal course of business.

101-6 Accounts Receivable – Amount deducted by clients for Expanded

Tax Withheld Withholding Tax (EWT). The clients will
issue a Tax Credit Certificate and this will
be used as Tax credit in the payment of
Quarterly Income Tax.

101-7 Advances to Employees Operational cash advances of Employees

(for the normal course of its trade).
Submission of Liquidation Report is
required once the cash advance is paid.
Inventory
101-8 Represents different products at the
branch.
Prepaid Expense
101-9 These expenses and prepayments expected
to benefit the company within a year. They
are debited upon payment of the expense
and credited for the monthly amortization.
Input VAT
101-10 Refers to the 12% Value Added Tax on price
of goods purchased from a VAT registered
person / Company

102 PROPERTY , PLANT

AND EQUIPMENT-
FIXED ASSETS

102-1 Furniture and Fixtures Represents furniture & fixture items in the
branch such as CCTV camera & recorder,
chairs & cabinets.

102-1-1 Accumulated Contra-Asset account representing

Depreciation cumulative portion of monthly
Furniture and depreciation of Furniture & Fixtures.
Fixtures
102-2 Office Equipment This refers to calculator, barcode scanner,
money detector and communication
equipment such as telephones and cellular

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phones used for the branch.

102-2-1 Accumulated Contra-Asset account representing

Depreciation-Office cumulative portion of monthly
Equipment depreciation of office equipment.

102-3 Branch Equipment Includes branch equipment such as: LED

TV, DVD Player, computer set, printers,
flash drive, ultrasonic cleaner, refilling
tools, Epson resetter, mini screw driver,
and other equipment at the branch.

Contra-Asset account representing

102-3-1 Accumulated cumulative amounts of monthly
Depreciation - Branch depreciation of branch equipment.
Equipments

103 OTHER ASSETS

103-1 Leasehold Improvement Improvements done 0on the leased area of

the branch.

103-1-1 Allowance for Contra-Asset account representing

Amortization of cumulative amounts of the expired
Leasehold portions of the Leasehold Improvement
Improvement

103-2 Organization Costs Pre-operating Expenses of the branch.

Contra-Asset account representing

103-2-1 Allowance for cumulative amounts of the expired portion
Amortization of of Organization Costs.
Organization Costs
Pertains to assets not classifiable in any of
103-3 Other Assets the above asset accounts.

200 LIABILITIES
201 CURRENT LIABILITIES

201-1 Accounts Payable - Represents obligations to the suppliers and

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Others other parties in the normal course of its

trade or business.

201-2 Accounts Payable- Represents obligations to parties other than

Others suppliers/ not relative to the normal course
of its trade or business.

201-3 Advances from Officers Represents obligations of the branch to the

President and other officers.

201-4 Pag-ibig Premiums Represents Officers’ and Employees’ share

Payable of Pag-ibig premiums withheld from their
monthly compensation

201-5 Pag-ibig Loans Payable Represents remittances of employees loan

payments to Pag-ibig.

201-6 Philhealth Premiums Represents Officers’ and Employees’ share

Payable of Philhealth premiums withheld from their
monthly compensation.

It should be remitted to Philhealth Office or

accredited bank on or before 10th day of the
month following the applicable month.

201-7 SSS Premiums Payable This account is credited for the SSS
premiums withheld from the salaries of
officers and employees.

Employer shall remit/pay employee’s

monthly premium contribution on or before
the 10th of the month following the
applicable month.

201-8 SSS Loans Payable This represents loan payments to SSS

deducted from employee’s salaries not yet
remitted to the SSS. This account is
debited when remittance is made.

201-9 Withholding Tax Payable Refers to tax withheld from employee’s

– Compensation compensation. It is debited upon
remittance to BIR.

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201-10 Withholding Tax Payable Refers to tax withheld from Income

– Expanded Payments (Expanded Withholding Tax).
This is debited upon remittance to BIR.

201-11 Output VAT Represents 12% Value Added Tax on the

sale of products at the Company and its
branches.

201-12 Income Tax Payable Represents set up of payable to BIR for the
income earned by the Company. A
corresponding debit entry to Provision for
Income Tax is deemed necessary upon
payable set up. BIR Form 1701Q/1702Q,
1701/1702

201-13 Accrued Expenses Represents expenses already incurred but

not yet paid.

202 LONG TERM

LIABILITIES

202-1 Loans & Notes Payable Bank Loan / Promissory Notes which will
mature beyond one year or normal cycle of
the branch.

2003 OTHER LIABILITIES

203-1 Dividend Payable Payable to Stockholders for the dividend

income earned and declared by the
company.
300 STOCKHOLDER’S
EQUITY
301 PAID-UP CAPITAL

301-1 Subscribed & Paid-up This account represents the shares of

Capital Stock capital stock subscribed and paid up by the
stockholders as manifested thru stock
certificate issuances.

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302 RETAINED EARNINGS These are profits earned by the Company

302-1 Unappropriated This account represents that portion which

Retained Earnings is free and can be declared as dividends to
stockholders.

302-2 Appropriated Retained This account represents that portion which

Earnings has been appropriated for some other
purposes.

302-3 Revenue & Expense This account represents increase (decrease)

Summary in net income. It is debited for any
decrease in net income and credited for any
increase in net income.

Note: This account is used at year end

closing of Nominal Accounts.

PROFIT and LOSS STATEMENT

400 REVENUE
401 Sales Represents net receipts from the sale of
products/items net of discounts, VAT and
other taxes of the Company and its
branches.

401-1 Sales Discounts This account represents discounts e.g.

employees of the Company and its
branches.

402 Other Income Refers for income not directly generated

from the normal revenue sources of the
branch.

500 COST OF SALES This represents the acquisition cost of

COMPANY items and products that have
been delivered and sold. It is debited upon
sale of items/products. This account is
credited at the end of the period for closing
to the Revenue and Expense Summary or

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for nay adjustment and correction deemed

necessary.

501 Beginning inventory Represents the preceding period’s ending

inventory.

502 Purchases This represents the acquisition of

Products/Items/Supplies for the period
covered.

503 Ending Inventory Represents stocks at the end of the day in

the Company/branch.

600 OPERATING
EXPENSE
601 Advertising & Marketing Expense to promote the Company and its
Expenses branches.

602 Royalty Fee Fee paid to Franchisor (if any) based from
% of Net Sales. Subject to 20% Final Tax.

603 Donation and Represents donations to charitable

Sponsorship institutions and other organizations during
special occasions/festivities.

604 Bank Charges Bank Debits representing interest cost of

checkbook, service charges for its bank
deposits.

605 Depreciation and The periodic charges of ordinary wear and

Amortization Expenses tear of the Fixed Assts/Expiration of
Leasehold & Pre-Operating Expenses of the
Company.

606 Cleaning Supplies Represents branch cleaning supplies which

include, broom, trash can, trash bag, dust
pan, glass cleaner and other cleaning
supplies.

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607 Store Supplies Represents branch supplies which include

supplies used at the branch.

608 Dues & Subscription Represents membership dues and magazine

subscriptions.

609 Employees Benefits Employee’s benefits such as sales

incentives, and allotment for medicines, if
there’s any.

610 Damage Expense Costs of damage products/supplies of the

branch.

611 Insurance Expenses Insurance policy premiums paid by the

Company and its branches.

612 Electricity Expense Charges for use of electricity

613 SSS Contributions Employer’s share of monthly SSS Premium

Contributions.

614 Philhealth Contributions Employer’s share of monthly Philhealth

Premium Contributions.

615 Pag-ibig/HDMF Employer’s share of monthly Pag-ibig

Contributions Premium Contributions.

616 Telecommunications Communication charges such as landline

Expenses and cell phone charges, internet charges,
service charges by courier and other similar
bills.

617 Rent Expenses Monthly rental charges of the Company and

its branches.

618 Repairs & Maintenance Represents expenses for maintenance

supplies for the Company and its branches.

619 Representation & PR Public Relation expenses incurred other

than ads and promo stated above.

620 Professional Fee Represents legal, accounting, and other

professional services rendered to the

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Company and its branches. Subject to 10%

Expanded Withholding Tax.

621 Salaries & Wages Office and branch employees’

compensations, including ECOLA and OT.

622 Employee Allowance Amount allocated as remuneration of the

employee’s expense.

623 Office Supplies Includes bond papers, staple wires, stapler,

folder, etc. used at the branch and office.

624 Transportation Expense Represents regular transportation expenses

of the employees/officers of the company.

625 Water Expense Represents water supplies monthly

charges. Includes purchases of mineral
water.

626 Seminars & Conferences As the title implies, it represents cost of

seminars & conferences sponsored by the
company.

627 Provision for Income Tax Allotment provided for payment of income
tax-year-end (computation is based from
the end of the year net profit earned by the
company). A corresponding credit entry to
Income Tax Payable is to be set up.

628 Taxes & Licenses Represents BIR / other Government Agency

related expenses incurred by the company.
This is prorated to the months covered.

629 13th Month Pay A monthly expense budget is set aside to

cover 13th month pay at the end of the year.

630 Interest Expense Represents interest payment made by the

company to its obligations. May include
penalty charges, etc.

631 Miscellaneous Expense This represents expenses not classifiable

under the above accounts.

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