Accounting Methods and Recordkeeping in Afghanistan
This guide outlines accounting methods and recordkeeping requirements for tax purposes in Afghanistan, including the cash and accrual methods and best practices for maintaining accurate records.
Introduction
This guide outlines the rules and regulations for accounting and keeping records for tax purposes.
Accounting Method
An accounting method is a set of rules used to determine when and how income and expenses are reported. There are two basic accounting methods: cash and accrual.
Cash Method
Under the cash method, you report income in the tax year when received. Expenses are generally deducted or capitalized in the tax year they are paid. Individuals typically use the cash method.
Accrual Method
Under the accrual method, you report income in the tax year it is earned, even if received in another year. Expenses are deducted or capitalized in the year incurred, regardless of payment. Corporations and Limited Liability Companies are generally required to use the accrual method.
Examples
Example 1: You run a carpet shop and sell a carpet for AFN 5,000 on 29 Hut 1388, but receive payment on 6 Hamal 1389. Under cash accounting, you record the income in 1389. Under accrual accounting, you record it in 1388. Example 2: You received an advance rental payment of AFN 300,000 for six months. Under cash accounting, record the income in 1388. Under accrual accounting, report AFN 150,000 in 1388 and AFN 150,000 in 1389.
Recordkeeping
According to the Income Tax Law 2009, businesses must keep adequate records to verify income and expenses. Good records are essential for accurate tax reporting and to avoid arbitrary tax assessments.
Kinds of Records to Keep
The law does not specify exact records, but businesses should choose a system that clearly shows income and expenses. Supporting documents include cash register tapes, bank deposit slips, invoices, and receipts.
Supporting Documents
Documents should verify gross receipts, purchases, expenses, and assets. Examples include cash register tapes, invoices, and sales slips.
Recording Business Transactions
A good recordkeeping system includes summarizing transactions in journals and ledgers. These can be maintained manually or electronically.