Reconciliation Time: Fixing the Mismatches Between Books and Tax Returns

From the Desk of a Filipino Accountant Who Has Cleaned Up More Financial Mismatches Than I Can Count

One of the most common (and stressful) things I see during tax season is this:
📉 The books say one thing…
📄 The tax returns say another…
😓 And the business owner is stuck in the middle, hoping it doesn’t trigger a BIR audit.

As an accountant working with various Filipino business owners—from start-ups to growing SMEs—I’ve handled many cases where mismatches between books and tax returns caused confusion, panic, and even penalties. And more often than not, the issue isn’t fraud or bad intent—it’s disorganized processes and lack of reconciliation.

In this blog, I’ll walk you through why these mismatches happen, how to fix them, and how setting up internal controls can keep your books and tax returns in sync—all year long.

📉 Why Do Books and Tax Returns Get Out of Sync?

Here are a few common culprits I see in real businesses:

1. Unrecorded or misclassified income and expenses

   • Sales were made but not posted to the books

   • Expenses paid in cash were never documented
     
     

2. Timing differences

   • Income recorded in the books this month, declared in the tax return next month (or vice versa)

   • VAT filed based on cash received, but books show accruals
     
     

3. Manual errors in filing

   • Bookkeeper filed the wrong BIR form or amount

   • Tax return amounts didn’t match the books due to copy-paste mistakes
     
     

4. Missing documentation

   • No supporting receipts or invoices to back up expense entries, leading to disallowed deductions
     
     

5. Disconnected systems

   • Bookkeeping done in Excel, tax filing done manually, and no one’s checking if they match
     
     

✅ How to Reconcile Books and Tax Returns Properly

Here’s the basic process I use with my clients:

1. Compare Your Financial Statements and Tax Filings

Start by checking:

• Monthly and quarterly sales vs. 2551Q or 2550M/Q

• Expenses and deductions vs. 1701/1702

• Input and output VAT vs. books

• Final tax withheld vs. BIR Form 1601-FQ
  
  

2. Create a Reconciliation Sheet

Make a table that includes your details per book and per BIR Filing, and differentiate.

This gives you a clear view of mismatches and lets you fix them with confidence.

3. Trace and Document the Differences

Once you see the gap, don’t guess.
Go back to:

• Sales records and receipts

• Bank deposits

• BIR confirmation emails or printed returns

• Supplier invoices and expense vouchers

📌 Don’t forget to check for encoding errors or double postings!

4. Correct the Books or File an Amended Return

If the books are wrong, update them.
If the tax return is incorrect, file an amendment before the deadline (to avoid penalties).
And keep all supporting documents—especially if the changes are significant.

5. Make Monthly Reconciliation a Habit

I always tell my clients: “Huwag hintayin ang mismatches—iwasan na agad.”
Reconciling every month helps you:

• Catch errors early

• Keep reports clean

• Be audit-ready any time
  
  

🛡️ Strengthen Your Internal Controls

Most mismatches happen because no one is double-checking the flow of information.
That’s where accountants like us come in. We help you:

• Build reconciliation templates

• Train staff on correct recording practices

• Review monthly reports for accuracy

• Align accounting timelines with tax filing schedules
  
  

📌 Final Thoughts: Reconciliation is Protection

If you're only looking at your books during filing season, you're doing it too late.
Reconciliation is like your early warning system—it protects you from audit stress, disallowed expenses, and costly surprises.

Let’s make reconciliation a routine—not a repair job. And if you need help creating a better system for keeping your books and tax returns in sync, let’s work together.

Because a reconciled business is a reliable business.