Accounting System

Income and loss method using the income and expense approach and property method using the asset and liability approach

2015/12/03

収益費用アプローチによる損益法と資産負債アプローチによる財産法

The difference between calculating profit from profit or loss and calculating it from assets and liabilities

When calculating a month's profit, we usually look at how much more revenue (on the credit side) was at the end of the month compared to expenses (on the debit side).

  • Profit = Revenue at the end of the month - Expenses at the end of the month

Profit, on the other hand, is the difference between assets (debit) and liabilities (credit) that has increased between the beginning of the month and the end of the month.

  • Profit = (Assets at the beginning of the month - Liabilities at the beginning of the month) - (Assets at the end of the month - Liabilities at the end of the month)

利益を損益から算出するか資産と負債から算出するかの違い

Both figures are the same, but the point is how much capital (on the credit side) has increased in one month, and the "income at the end of the month - expenses at the end of the month" is the increase in capital, that is, profit for the month.

Thinking of profit in terms of profit and loss is called the profit and loss method, and thinking in terms of assets and liabilities is called the property method.

In the profit and loss method, the profit can be calculated by simply tabulating the profit and loss items for the current month, but in the property method, the movement of assets and liabilities for the current month needs to be tabulated, as well as the balance at the beginning of the month.

The balance of assets and liabilities (B/S) at the end of the month will be carried forward to the next month, but the balance of profit and loss (P/L) will not be carried forward, but will be carried forward to the equity section of B/S, thus balancing the total debit and credit of P/L and B/S.

How to aggregate the balance of asset and liability items at the end of the month by department

Since the P/L profit and loss account is usually assigned a department code in the ledger (G/L), the amount of the current month's accrual can be tabulated by department at the end of the month.

On the other hand, the assets and liabilities on B/S are usually not assigned a departmental code on G/L, and the balance carried forward at the beginning of the month is not divided by department, and even if a departmental code is assigned, it is almost always a representative department such as "the entire company".

Therefore, in order to tabulate assets and liabilities by department after the accounting system goes live, it is necessary to set a certain timing as a cutoff and make an offsetting journal to transfer the balance at the end of the month between the same subjects, where the debit side is by department and the credit side is the representative department.

  • Dr. Cash/Bank(Department Code A) 10    Cr. Cash/Bank(Department Code なし) 30
  • Dr. Cash/Bank(Department Code B) 10
  • Dr. Cash/Bank(Department Code C) 10

This makes it possible to aggregate assets and liabilities in G/L with departmental codes from the following month.

Cost of Revenue Approach

In the last article, we looked at the relationship between internal control and IT compliance required by JSOX. As a trend of system implementation, paying attention to JSOX and IFRS is now an inevitable trend.

Japanese accounting standards emphasize P/L (Profit and Loss Statement), which is due to the fact that it was easy to predict the future based on the period profit and loss of the current period alone, assuming the economy was growing rapidly during the high growth period. After preparing P/L, assets, liabilities, and capital items that will be the source of income and expenses in the next and subsequent years are recorded as supplementary B/S (balance sheet), and B/S items are verified and reevaluated to make them suitable for the actual situation and reported. There is a strong tendency to treat it as an extraordinary gain or loss when it is completed.

Asset-liability approach

On the other hand, IFRS accounting standards aim to provide investors and creditors with the information they need to evaluate the value of the company, and to do so, they focus on B/S, which means that fixed assets are impaired and revalued, and financial assets that can be sold are marked to market and B/S is accurately prepared, and cash flows in the future We will be able to know whether we are in a position to generate assets. While IFRS-based financial reporting will be mandatory for consolidation, financial reporting will continue to need to be prepared on a country-specific basis for tax purposes.

What is the IFRS compliance of the system?

There are two types of cases that can be handled by system modifications and operational changes, the following is an approximate list of suggestions that we make to our clients when installing the system.

  1. Recording sales on a realization basis
    When the sales are recorded on an accrual basis, it is better to issue an invoice when the customer accepts the goods and recognize A/R and sales.
  2. Unification of inventory valuation methods Since there is a need to unify inventory valuation methods within a consolidated company, it is better to conform to the method of Japan headquarters, which is permitted by IFRS, such as FIFO, moving average method, standard cost method (standard unit price method) and average cost method, and LIFO is not permitted.
  3. Separate control of actual inventory and accounting inventoryIn most cases, the cost of sales is established by month-end inventory, but the mismatch between inventory and accounting during the month is managed as an asset for unrealized sales on auxiliary forms.
  4. Revaluation of property, plant and equipment: Instead of applying the tax law to property, plant and equipment, the tax laws should be revalued each fiscal year and the depreciation method and useful life reviewed.
  5. Cash flow statement (direct method) In Indonesia, a cash flow statement is not required and is often not prepared, but it is nominally required.
  6. Multiple ledger taxation will remain under each country's own standards, but consolidated financial statements will be IFRS compliant (with emphasis on B/S). Although IFRS compliance is obligatory for investors and creditors in terms of accounting, it is not always possible for tax authorities to comply with this. Therefore, it is ideal if the accounting system implements the multiple standard ledger function. Concretely, accounting journal data should be managed separately, and it should be possible to select the addition or non-addition of journal data at the time of output.