Israeli businesses must keep orderly books that support every figure in their tax filings. Companies keep double-entry books, while small sole proprietors may use simpler records. Either way, each entry needs a source document, and the books must be ready for the annual closing and any audit.
Single-entry bookkeeping records income and expenses as a running list. It is common among small sole proprietors, where the question is mostly how much came in, how much went out, and what VAT is involved. Double-entry bookkeeping records every transaction twice, as a debit and a credit, which produces a balance sheet and a profit and loss account from the same data.
Companies keep double-entry books as a matter of course, since their annual financial statements require a balance sheet. A sole proprietor with growing turnover, loans, inventory or employees often moves to double entry because the simple list stops answering the questions that banks and tax assessors ask.
The accountant usually decides the method at registration. Ask for the reasoning, because changing method later means restating opening balances.
Every entry must trace back to a source document: a tax invoice, a receipt, a bank statement line, a payroll slip or a customs document. An expense without a document is, in the eyes of the Tax Authority, an unsupported claim, and it can be disallowed with penalties.
The books also need a consistent chart of accounts. Sales, cost of goods, rent, salaries, professional fees and VAT should each sit in a stable account so that year-on-year comparisons make sense and the annual closing can be assembled without reclassifying.
Keep the VAT accounts reconciled with the periodic VAT reports, the payroll accounts with the withholding reports, and the bank account with the statements. Those three reconciliations catch most errors before they reach the authority.
Inventory, fixed assets and loans need their own schedules. A list of assets with purchase date and cost supports the depreciation entries, and a loan schedule explains the interest line, which otherwise looks like an unexplained expense.
At year end the accountant closes the books, adjusts for accruals such as unpaid salaries and depreciation, and prepares financial statements. Companies attach the figures to the corporate tax return in the structure of Form 6111, which the authority uses to classify the results of the business line by line.
A good closing begins in January for a December year end: confirm opening balances, review open customer and supplier balances, count inventory if there is any, and list loans and guarantees. A closing that starts when the return is due leaves no time to fix surprises.
Where an external auditor is appointed, schedule the audit early. Auditors ask for confirmations from banks and counterparties, and those replies take weeks.
Ask the auditor or accountant which supporting schedules they expect at closing: fixed asset register, loan statements, aged receivables and payables, and a list of related-party balances. Preparing them in January for a December closing saves several weeks of follow-up questions.
Records must be kept for a statutory period after the end of the relevant tax year; many practitioners work to seven years, but confirm the period for your situation with your accountant. Payroll, customs and property records can have longer practical horizons.
Electronic storage is accepted when it remains readable and unaltered. Keep the original PDF of each invoice, rather than a retyped summary, together with the supporting bank line.
A backup that lives on the same laptop as the books is not a backup. Store a copy elsewhere and test restoring it once a year.
Most bookkeeping problems start as small delays. A receipt photographed on the day takes ten seconds; the same receipt hunted down three months later may not exist. Set up one inbox or folder where every purchase invoice is saved the day it arrives, named by date and supplier.
Once a week, spend half an hour on three tasks. Enter or forward the new documents to the bookkeeper, list the bank lines without a document, and note customer invoices that are overdue. The list of undocumented bank lines is the most valuable output, because each line is a possible unsupported expense.
Agree with the accountant on a monthly cut-off day. If everyone knows that documents received after the fifth of the month go into the next period, the VAT report and the management numbers are consistent and no one argues about the period.
Under the cash basis you record income when money arrives and expenses when you pay. Under the accrual basis you record income when earned and expenses when incurred, regardless of the payment date. Companies generally use accrual accounting, because their financial statements require it.
The difference matters at year end. An invoice issued in December and paid in January is December income on an accrual basis, so it enters the year's profit and the tax. A salary for December paid in January is a December expense. The accountant adjusts for these items in the closing.
Do not switch method casually. A change requires adjustments for opening balances and, in some cases, the approval or notification of the authority. If your business grows and the current method stops being sufficient, raise it with the accountant at the start of a tax year.
4softerp.net keeps multi-company financial records, and 4invoices.net archives the PDF invoices that support the sales side. Neither provides a built-in Israeli chart of accounts or produces Form 6111, and neither files with the authority. Ask your accountant which chart of accounts and export format they require, and agree it before you start entering data.
Documents are scattered; the accountant chases everything retrospectively.
Keep source documents in one place: issued invoices in the 4invoices.net archive and multi-company financial records in 4softerp.net. Share access with your accountant by agreement.
The Israeli chart of accounts is not standard in off-the-shelf software.
Ask your accountant which chart of accounts and export format is needed. 4b2b does not provide a built-in Israeli chart of accounts.
Receipts are collected in a drawer and cannot be matched to bank lines at year end.
Save every purchase invoice on the day it arrives in one shared folder. 4softerp.net holds the entries you make; it does not read your receipts.
Companies keep double-entry books because their financial statements include a balance sheet. Small sole proprietors may use simpler single-entry records, but growth, loans, inventory or employees usually push them towards double entry. Ask your accountant which method applies to your file and what that means for the opening balances. The answer can change as the business grows.
Records must be kept for a statutory period after the relevant tax year ends, and many practitioners work to seven years. Because requirements can differ by document type and by situation, confirm the exact period with your accountant, and keep originals of invoices, bank statements and payroll documents in readable form.
Form 6111 is the structure in which a business reports the lines of its financial statements to the Israel Tax Authority together with its annual return, so that the authority can classify the results. Your accountant normally prepares it from the closed books, so keep the ledger consistent throughout the year.
This depends on the rules and approvals that apply to your business and on the practice of your accountant. Many Israeli companies with English-speaking owners still keep statutory records in a form their accountant can submit to the authority. Raise the question at registration, not at year end. Never assume it is acceptable without checking.
Entering expenses without a source document, followed by mixing private and business payments. Both make deductions harder to defend in an audit. A simple weekly habit of scanning invoices, matching bank lines and asking the accountant about unclear items prevents most of these problems before the annual closing arrives and keeps the year-end work short.
This page is informational. Confirm requirements with the competent authority; 4b2b tools cover general invoicing and records only.
