Every Hong Kong company must maintain proper accounting records. This is a legal requirement under Section 373 of the Companies Ordinance (Cap. 622) and Section 51C of the Inland Revenue Ordinance (Cap. 112). Failure to keep adequate records is a criminal offence, not a compliance oversight.
This guide covers what records must be kept, for how long, the bookkeeping methods used in Hong Kong, how accounting feeds into the annual audit and tax filing, and when to outsource. For audit obligations, see our annual requirements guide. For tax filing, see our profits tax guide. For the full Hong Kong tax system your records must support, see our corporate tax guide.
Highlights of this article
- Hong Kong companies must keep accounting records for 7 years under the Companies Ordinance and the IRO.
- Records must cover all transactions, show financial position at any time, and support annual audit and tax filing.
- The standard method is double-entry bookkeeping, maintained in accounting software or by an accounting firm.
- Accounting records feed directly into the annual audit, the Profits Tax Return, and the financial statements presented at the AGM.
- There is no GST or VAT in Hong Kong, which simplifies accounting compared to most other jurisdictions.
- Outsourcing bookkeeping typically costs HKD 500 to 2,500/month for small Hong Kong companies.
Legal obligations
Companies Ordinance (Cap. 622), Section 373 requires every Hong Kong company to keep accounting records that:
- Correctly record and explain all transactions
- Enable the company's financial position to be determined with reasonable accuracy at any time
- Allow proper financial statements to be prepared and audited
Inland Revenue Ordinance (Cap. 112), Section 51C requires any person carrying on a trade, profession, or business in Hong Kong to keep sufficient records to allow accurate tax returns to be filed.
Both requirements carry a 7-year retention period.
| Offence | Maximum penalty |
|---|---|
| Failure to keep accounting records (Companies Ordinance) | HKD 300,000 |
| Failure to keep tax records (Inland Revenue Ordinance) | HKD 10,000 per return |
What records must be kept
Source documents:
- Sales invoices issued to customers
- Purchase invoices and receipts from suppliers
- Bank statements for all company accounts
- Import and export documents (where applicable)
- Payroll records and MPF contribution statements
- Contracts, loan agreements, and director meeting minutes relating to financial decisions
Accounting records:
- General ledger
- Sales ledger (accounts receivable)
- Purchase ledger (accounts payable)
- Cash book and monthly bank reconciliations
- Fixed asset register
- Stock records (for inventory-holding companies)
Double-entry bookkeeping
The standard method in Hong Kong is double-entry bookkeeping. Every transaction is recorded as both a debit and a credit in at least 2 accounts. The system ensures the fundamental accounting equation holds at all times:
Assets = Liabilities + Equity
| Transaction | Debit | Credit |
|---|---|---|
| Customer pays HKD 10,000 invoice | Bank (+asset) | Accounts receivable (-asset) |
| Buy office supplies HKD 500 cash | Office expense (+expense) | Bank (-asset) |
| Receive supplier invoice HKD 8,000 | Purchases (+expense) | Accounts payable (+liability) |
| Pay supplier HKD 8,000 | Accounts payable (-liability) | Bank (-asset) |
Double-entry catches errors through the trial balance (total debits must equal total credits) and makes annual audits faster and cheaper by ensuring records are internally consistent throughout the year.
The bookkeeping process
Step 1: Collect and categorise source documents
Invoice every sale. Collect every supplier invoice and receipt. File digitally by month and category. Scan originals if keeping digital records, but retain physical originals for 7 years. Cloud accounting software (Xero, QuickBooks) allows documents to be attached directly to transactions.
Step 2: Record transactions
Enter each transaction with the correct date, account code, and amount. In Hong Kong there is no GST or VAT to track, which eliminates one of the most time-consuming bookkeeping tasks in other jurisdictions.
Step 3: Reconcile monthly
Bank reconciliation: confirm every statement entry appears in the accounting system. Accounts receivable reconciliation: confirm debtor balances match invoices outstanding. Monthly reconciliation catches errors before they compound at year-end.
Step 4: Prepare trial balance
At the end of each period, confirm total debits equal total credits. Any difference indicates an error. A clean trial balance is the foundation for producing monthly management accounts and the annual financial statements.
Step 5: Year-end close
Post adjusting entries: accruals, prepayments, depreciation, inventory adjustments. Prepare the final year-end trial balance. This is the starting point for the auditor and for preparing statutory financial statements.
How bookkeeping feeds into audit and tax
| Step | Output | Used for |
|---|---|---|
| Daily bookkeeping | Transaction records | Ongoing management |
| Monthly reconciliation | Reconciled ledgers | Management accounts |
| Year-end close | Adjusted trial balance | Statutory accounts input |
| Statutory accounts | Audited financial statements | Audit sign-off + IRD filing |
| Profits Tax Return | Tax computation | IRD assessment |
The IRD requires audited financial statements with the Profits Tax Return. Audited accounts require clean bookkeeping records. The chain is: bookkeeping → audit → tax filing. All 3 are mandatory for every active Hong Kong company.
Accounting software options
| Option | Best for | Typical monthly cost |
|---|---|---|
| Spreadsheets | Startup, under 30 transactions/month | Free |
| Cloud software (Xero, QuickBooks) | SMEs, 30 to 500 transactions/month | HKD 150 to 500 |
| Enterprise (Sage, SAP) | 500+ transactions/month or multiple entities | HKD 1,500+ |
Xero is the most widely used platform among Hong Kong accounting firms and SMEs. Using the same platform as your accountant removes manual data transfer and makes switching firms straightforward. For a full comparison, see our accounting software guide.
When to outsource bookkeeping
Consider outsourcing when:
- The founder or director is spending more than 5 hours per month on bookkeeping
- Transaction volume exceeds 100 per month
- The company has employees and MPF obligations
- Banks or investors require monthly or quarterly management accounts
- Year-end audit costs are high due to disorganised records
| Company size | Monthly transactions | Estimated outsourced cost |
|---|---|---|
| Micro (1 to 2 staff) | Under 50 | HKD 500 to 1,000/month |
| Small (5 to 15 staff) | 50 to 200 | HKD 1,000 to 2,500/month |
| Medium (15 to 50 staff) | 200 to 500 | HKD 2,500 to 5,000/month |
Outsourcing typically reduces year-end audit costs by more than the bookkeeping fee, because auditors spend less time on well-maintained records.
Air Corporate provides bookkeeping and accounting services for Hong Kong companies, from monthly transaction processing to year-end audit preparation. Get started
