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Streamlining Bookkeeping and Accounting Practices in Hong Kong

bookkeeping and accounting in hong kong

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Hong Kong bookkeeping tracks your money (income & expenses). Accounting uses that info to create reports showing your business health and handle taxes. Think of it as data entry (bookkeeping) for financial reports (accounting). Both are essential for your Hong Kong business.

A recent survey from YouGov revealed that more than 70% of entrepreneurs spend over 90 hours per year on accounting only.

90 hours!

This is just wrong.

The only way to grow your business is to focus on finding and serving clients.

You should stay away from admin time-sinks by passing it to professionals you can trust.

Concept of Bookkeeping and Accounting

The pressure of managing bookkeeping and accounting in Hong Kong firms can differ widely. Larger companies deal with more complicated transactions, multiple entities, and various compliance requirements, which can be more stressful. Meanwhile, smaller companies, despite having simpler finances, may still find it stressful to comply with regulations and meet deadlines.

Businesses operating in Hong Kong are obligated to adhere to the regulations and standards established by the Inland Revenue Department (IRD) concerning bookkeeping and accounting practices. The IRD serves as the counterpart to the Internal Revenue Service (IRS) in the United States. Compliance with these practices is essential to guarantee precise reporting of financial data and to facilitate accurate tax assessment and collection processes for old and new business owners.

Bookkeeping Process

Bookkeeping is the process that involves systematically recording and organizing a company's financial transactions, capturing income, expenses, and other financial activities on a daily or weekly basis in a clear and understandable manner. This bookkeeping process forms the basis for accurate financial reporting and decision-making within your business.

Bookkeepers document all financial transactions, such as sales, purchases, payments, receipts, and payroll. In Hong Kong, regulations mandate that a business's financial records must be retained for at least seven years.

In addition to the fundamentals, Hong Kong businesses must adhere to the following accounting and bookkeeping tasks and obligations:

  • Monitor customer invoices and payments: Maintain separate records for amounts owed by customers (accounts receivable) and amounts owed to suppliers (accounts payable).
  • Manage your assets: Keep a register of long-term investments such as property and equipment (fixed assets).
  • Plan and oversee cash flow: Have cash flow statements with a forecast of incoming and outgoing funds.
  • Compile financial statements: Regularly summarize your company's financial health through documents like balance sheets and income statements.
  • Check bank accounts: Verify that financial records align with bank statements to ensure accuracy.
  • Conduct regular performance reviews: Analyze business finances on a monthly, quarterly, and annual basis to identify trends and make sound business decisions.
  • Keep leadership informed: Provide routine reports containing financial insights to inform strategic planning and decision-making processes.

Bookkeeping Methods

There are two primary methods of bookkeeping: single-entry bookkeeping and double-entry bookkeeping.

  • Single-entry bookkeeping may be suitable for very small businesses with straightforward finances, as it records each transaction only once, typically as income or expense. However, single-entry system lacks tracking for assets, liabilities, or owner's equity, making it challenging to assess overall financial health.
  • Most businesses, particularly those surpassing certain size thresholds or requiring audits, should adopt a double-entry bookkeeping system for its accuracy and compliance advantages. This method records each transaction twice, with equal and offsetting entries in different accounts, to ensure accurate bookkeeping. Additionally, the double-entry system ensures transactional balance and provides a comprehensive view of financial activity.

Bookkeeping can be time-consuming, especially if you lack experience. In addition, mistakes in bookkeeping can have costly consequences.

Accounting Process

As per Section 179 and Part 9 of the Hong Kong Companies Ordinance, every company must uphold accurate accounting records and meet annual statutory audit requirements.

Accounting goes beyond recording transactions; it involves a wider range of practices aimed at guaranteeing the transparency, accuracy, and integrity of your company's financial information. While bookkeeping lays the groundwork, accounting extends it by analyzing, interpreting, and using financial information for strategic decision-making purposes.

Financial Statements

Unless granted an exemption, a Hong Kong incorporated company must have its annual financial statement audited by a certified public accountant (CPA). Regardless of their size, sector, or ownership arrangement, all businesses incorporated in Hong Kong are legally required to undergo a statutory audit.

The financial statements must adhere to the Hong Kong Financial Reporting Standards (HKFRS) established by the Hong Kong Institute of Certified Public Accountants (HKICPA). Additionally, these financial statements must be audited. This ensures that financial reporting across companies is standardized, transparent, and comparable.

Hong Kong Generally Accepted Accounting Principles (GAAP) are standards and procedures that guide companies in compiling their general purpose financial statements. Compliance with GAAP is necessary if a company shares its financial statements beyond the company itself.

General Ledger

Businesses must record transactions in the general ledger, which should be categorized into specific accounts. This detailed record must adhere to specific standards and must comprise the following elements:

  1. Statement of Financial Position: This document depicts the financial condition of the business as of a particular date, typically the end of its financial year. It summarizes the company's financial situation.
  2. Statement of Comprehensive Income: This statement delineates the financial performance of the business over a specific period, usually the financial year. It illustrates the company's revenues, expenses, and net income (profit and loss statement).
  3. Statement of Changes in Equity: This statement elucidates the alterations in the owner's equity during the reporting period. It encompasses capital contributions, dividend disbursements, and retained earnings.
  4. Statement of Cash Flow: This statement furnishes details about the movement of cash into and out of the business throughout the reporting period. It categorizes cash flows from operational, investment, and financing activities.
  5. Notes to the Financial Statements: These supplementary notes offer further explanations and details regarding the information presented in the main statements.

Annual General Meeting

In Hong Kong, the annual general meeting (AGM) holds significant importance in the presentation and discussion of annual financial reports. The AGM must be convened within six months following the conclusion of the company's financial year. It serves as a platform for open and transparent communication between the company and its shareholders regarding financial matters.

During the AGM, shareholders are given the opportunity to inquire, express concerns, and seek clarification regarding the financial statements and overall company performance. The board of directors and management address these queries and furnish additional information. The audited annual financial statements, prepared in accordance with either HKFRS or International Financial Reporting Standards (IFRS), are presented to the shareholders at the AGM.

These financial statements comprise the balance sheet, income statement, cash flow statement, and accompanying notes, offering a comprehensive overview of the company's financial performance and standing.

Wait Until the End of the Year

You basically wait until the end of the year to deal with your accounting. It is fine if your company has very few financial transactions. But it is otherwise not a good idea. Why? simply because you will not remember in November what happened with your Hong Kong company in January.

Also, when you wait until the end of the year, the work will be done in a rush with little room for tax planning and optimization.

Solo Accounting Software

Once you realize that waiting until the end of the year is not a good option, you will be tempted to use accounting software to keep track of your accounting and bookkeeping all year long.

Some companies use accounting and bookkeeping software to help them report and manage their own bookkeeping. Using this software smartly can make financial management easier, but it can't replace the expertise of an accountant.

That is a good idea, but these software programs can be complicated to use. As a result, you may end up spending a lot of time working just inputting your invoices and other records into the accounting software that you chose. Sometimes, your accountant will even tell you at the end of the year that you made mistakes using the software and that part of the work needs to be done again.

modern bookkeeping and accounting

Having Air Corporate for a Modern Bookkeeping and Accounting Service

Staying updated with regulations and tax requirements can be tough, and having skilled bookkeepers helps maintain accurate records and ensure compliance. This also allows you to focus on other business tasks.

Below are ways Air Corporate can effectively handle the bookkeeping and accounting for your Hong Kong company.

Monthly Bookkeeping and Accounting Packages

The idea is simple: we give you access to your own dedicated professional accountant, available for you each day, but without the trouble or cost of having an accountant in-house on your payroll.

When you use our service, your accountant will do many things to make your life easier: such as sending your invoices, matching your business's financial transactions with your bank statements, preparing your monthly expense reports, payroll and MPF filings if you have employees, and your financial statements.

All this is done using top-notch cloud accounting software that you can access anytime.

Communication with your accountant is easy through WhatsApp or email. And when any information or document regarding your accounting is missing, your accountant will simply chase you.

Tax Planning and Optimization

Finally, because accounting does not make much sense without looking at tax matters, our monthly accounting package includes two conference calls each year to help with your Hong Kong company's tax planning and optimization.

Do not look further if you want efficiency and peace of mind for your Hong Kong company bookkeeping and accounting.

Are you ready to let go of all the admin headaches? Switch to Air Corporate today and enjoy your freedom from admin.

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Vivian Au

For many years, I worked at big accounting and company secretary firms in Hong Kong. I started Air Corporate to make the life of entrepreneurs and SMEs easy.

Vivian Au

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