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How to Prepare accounting records and Filing tax without an accountant

2022-03-29

Pacers has received numerous questions of accounting and tax filing for unlimited companies. Let us share our practical knowledge with you to support your business operation.

Is unlimited company not required to prepare accounting records and tax filing?

Certainly not! Although there is no legal requirement for unlimited companies to prepare audit reports, accounts and tax returns should be submitted to the Inland Revenue Department when filing tax

As unlimited companies are not required to hire Certified Public Accountants, they are subjected to a lower accounting standard than limited companies. Basically, it will be acceptable if the accounts comply with the submission requirements of the Inland Revenue Department.

In general, based on the amount of annual revenue generated by the unlimited companies (from 1st April to 31st March in the following year), the Inland Revenue Department will impose different requirements of submitting tax returns.

  1. For unlimited companies generating annual gross income not exceeding HK$2,000,000, they are treated as small businesses and only an income statement is required (Stating the company’s revenue, expense, and profit clearly)
  2. Separate accounts, income statement and statement of financial position (Listing company’s assets and liabilities) should be submitted for each business if its gross income exceeded $2,000,000.

How to prepare book entries for an unlimited company?

Accounting software and professional knowledge are not necessary when preparing book entries for an unlimited company. Instead, some basic techniques and simple procedures can solve the problem.

Income statement

The income statement shows the company’s revenue and expense throughout the year.

Here are some items that should be well-recorded and classified.

Sales: Revenue generated from the daily operation of the company

Purchase: Expenditure of buying goods

Gross profit: Sales – Purchase

Other income: Revenue generated other than the daily operation of your company. For instance, subsidies from government anti-epidemic fund, gain on disposal of assets, bank interest income.

Expense: Expenditures incurred from the daily operation of your company, including salaries, rental expenses, administrative expenses.

Net profit: Gross profit + Other income – Expenses

Statement of Financial Position

The statement of financial position is a statement of assets and liabilities at the year-end of a company (31st March of every year). The procedures will be more complicated than that of an income statement. Here are some standard classifications

1. Assets

  • Real Estate, factories, and equipment: Unlimited company’s purchases of equipment (such as computers, motor vehicles) that are in a large amount of money and will be used for more than a year. Renovation of office premises or operating business is also classified as an asset.
  • Cash and bank balance︰Bank account balance under the company (Bank account balance under the owners should not be included) and the amount of cash held by the company
  • Receivables: Amount not yet received after providing goods or services.

2. Liabilities

Payables: Amount not yet paid after consuming goods or services

Accrued salaries: Salaries remain unpaid

Tax Filing for Unlimited Companies

If the unlimited company is fully owned by you (Sole Proprietorship), the income and expenses of your unlimited company should be reported in Tax Return – Individuals (Form BIR60) Part 5.

If the unlimited company is jointly owned by you and your business partners (Partnership), remember not to declare the revenue and expenditure of your company in Tax Return – Individuals (Form BIR60). Instead, you should complete the Profits Tax Returns (Form BIR52) separately issued by the Inland Revenue Department.

Meanings of some special terms on tax returns

After understanding the preparation of book entries and tax filing for unlimited companies, there are still some complicated terms on tax returns that you may not fully understand. Below are some examples:

Gross income: Sales + Other income

Turnover: Revenue generated from the daily operation of the company

Gross profit: Turnover – Purchase

Net Profit: Gross profit + Other income – Expense

Conclusion

When compared with limited company, unlimited company has a more straightforward and flexible management. Accounting and tax filing for unlimited companies are uncomplicated as well. Therefore, it is manageable for you to complete the accounts and tax returns without advanced software and intimate knowledge.

Pacers is a diversified company providing professional consultancy services. We are eager to make progress and develop together with our clients. If you have encountered any difficulties when operating your unlimited company, please feel free to contact us directly on our website or email info@pacersconsulting.com. Want to hear more techniques and examples of running an unlimited company? Follow us on Facebook, Instagram, and Google now to stay on top of our latest news!

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