{"id":57067,"date":"2019-04-09T19:26:01","date_gmt":"2019-04-09T12:26:01","guid":{"rendered":"https:\/\/bahtera.jp\/accounting\/"},"modified":"2025-03-20T14:14:50","modified_gmt":"2025-03-20T07:14:50","slug":"accounting","status":"publish","type":"post","link":"https:\/\/bahtera.jp\/en\/accounting\/","title":{"rendered":"The Fun and Challenges of Accounting Conceived in Indonesia"},"content":{"rendered":"

Accounting is a puzzle-like mechanism where a single transaction is recorded on two sides\u2014debit and credit\u2014incorporating the difference between expenses and revenues into net assets, balancing the equation “Assets = Liabilities + Net Assets.” Cash flow management involves adjusting accrual-based transaction entries to a cash basis to track the movement of cash and deposits.
\n\t\t\t\t\r\n\t\t\t\t

\r\n\t\t\t\t\t\t\t\t\t\t
\r\n\t\t\t\t\t\t
\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\u30a4\u30f3\u30c9\u30cd\u30b7\u30a2\u306e\u52b4\u52d9\u3068\u6cd5\u5f8b\u307e\u3068\u3081\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dt>\r\n\t\t\t\t\t\t
\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

Accounting System in Indonesia<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

\r\n\t\t\t\t\t\t\t\t\t

The cloudification of accounting systems is advancing in Indonesia, with the three major local cloud systemsAccurate, Zahir, and Jurnalleading the market. However, in reality, it is said that fewer than 8% of domestic companies have implemented accounting systems. This is why new cloud-based accounting systems continue to be launched in what might seem like an already saturated Indonesian market. It suggests that both domestic and international IT startups see significant potential for cloud accounting systems to expand their market share locally. In Indonesia, automated journal entries due to the widespread use of accounting systems have become commonplace, and over the … <\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

\u7d9a\u304d\u3092\u898b\u308b<\/p>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dd>\r\n\t\t\t\t\t<\/dl>\r\n\t\t\t\t<\/div>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t<\/p>\n

What Accounting Information I Want to Share on This Blog<\/h2>\n

Over nearly 20 years of implementing business systems in Indonesia, I\u2019ve compiled knowledge related to IT and operations gained from conversations with on-site staff, as well as the challenges faced in advancing projects, into this blog.
\nIf this can serve as a means to alleviate some of the anxiety for expatriates or business travelers in Indonesia who find themselves grappling with tasks beyond their main expertise, nothing would make me happier.
\nThe number of accesses to this blog from Japan is overwhelmingly higher for accounting-related entries than for Indonesia-related ones. Entries on topics like inter-account transfers, wage rate calculations, and journal entries for paid\/unpaid provisions seem to attract attention from corporate accounting staff and IT departments.
\n\t\t\t\t\r\n\t\t\t\t

\r\n\t\t\t\t\t\t\t\t\t\t
\r\n\t\t\t\t\t\t
\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\u30b9\u30ca\u30e4\u30f3\u7af6\u6280\u5834\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dt>\r\n\t\t\t\t\t\t
\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

Paid Supply and Free Supply to Subcontractors in Indonesia<\/p>\r\n\t\t\t\t\t\t\t\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

\r\n\t\t\t\t\t\t\t\t\t

Paid supply involves selling materials to a subcontractor and purchasing the processed work-in-progress (WIP) afterward, whereas free supply involves issuing a purchase order (P\/O) for subcontracted WIP, recording material allocation and issuance based on issuance instructions, logging usage performance of supplied materials at the subcontractor, and recording the receipt performance of the WIP.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t

\u7d9a\u304d\u3092\u898b\u308b<\/p>\r\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/dd>\r\n\t\t\t\t\t<\/dl>\r\n\t\t\t\t<\/div>\r\n\t\t\t\t<\/a>\r\n\t\t\t\t
\nWhile accounting knowledge isn\u2019t necessarily required for business system work, there\u2019s no doubt that having it enables deeper discussions with Indonesian accounting staff.
\nDuring my student days, I considered becoming an accountant. I started by passing the Nikkei Bookkeeping Level 2 exam and studied for Level 1 but failed.
\nBack then, I lacked the grit to dedicate my entire student life to exam preparation. After developing an interest in Indian classical music, I spent most long holidays in India, and my dream of becoming an accountant faded away.
\nWhen a junior member of the Chinese martial arts club I belonged to, S-kun, quit the club upon advancing to his second year to focus on the CPA exam and later passed it as a fourth-year student after my graduation, I felt a mix of congratulations and jealousy. Having seen S-kun\u2019s hard work, I also resigned myself to the fact that I could never fully commit to exam prep like he did.
\nWhile I don\u2019t have the expertise of a CPA, I hope to share the knowledge and experience gained from implementing and operating accounting systems\u2014insights not found in academic accounting or bookkeeping studies.<\/p>\n

The Fun of Accounting: Amounts Matching Like a Sliding Puzzle<\/h2>\n

Accounting has a “sliding puzzle” mechanism where a month\u2019s worth of journal entries\u2014split into debit and credit for each transaction\u2014are listed, and only expense and revenue items are extracted and subtracted to derive profit (or loss). This is then incorporated into net assets, balancing “Assets = Liabilities + Capital (Net Assets).”
\nThe more profit you earn, the more capital grows; the more losses you incur, the more capital shrinks. When cash and deposits run out, it\u2019s game over for the company.<\/p>\n

<\/div>\n
All Transactions Corresponding to Debit and Credit<\/p>\n
\n
    \n
  • Increase in Assets <-> Decrease in Assets<\/li>\n
  • Decrease in Liabilities <-> Increase in Liabilities<\/li>\n
  • Decrease in Capital <-> Increase in Capital<\/li>\n
  • Increase in Expenses <-> Decrease in Expenses<\/li>\n
  • Decrease in Revenue <-> Increase in Revenue<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

    The current month\u2019s (or period\u2019s) profit\/loss is calculated in the P\/L (Profit and Loss Statement), while the B\/S (Balance Sheet) shows the resulting state of assets, liabilities, and net assets\u2014all rooted in real-world transactions listed above.<\/p>\n

    The Difficulty of Introducing Time into Real-World Transactions to Record Non-Physical Events<\/h2>\n

    The real world is a three-dimensional space formed by up-down, left-right, and front-back. In accounting, however, the concept of time is added to transactions occurring in this 3D space, requiring bookkeeping with a 4D perspective.
    \nFor example, when purchasing fixed assets like machinery or inspection equipment, they become yours through cash payment or credit (deferred payment).
    \nIf using these fixed assets contributes\u2014directly or indirectly\u2014to profit, the fair profit isn\u2019t achieved unless the contribution is expensed and deducted from revenue.
    \nThus, even though no transaction occurs in the real world at that moment, past purchases like machinery (fixed assets), stationery (supplies), or prepaid insurance (an asset representing the right to free or discounted medical treatment) are considered to have contributed to the current month\u2019s revenue. Their contribution is quantified and recorded as an expense.
    \nAdding the concept of time to 3D real-world transactions turns them into 4D. Like Doraemon\u2019s 4D pocket, payments made at some point in the past retroactively become expenses in the present (current period). Typical examples include depreciation, accruals (prepaid expenses), and supplies.<\/p>\n

    Depreciation<\/strong>
    \nFixed assets purchased in the past are deemed to contribute to the current month\u2019s revenue, so their contribution is expensed. The acquisition cost remains unchanged, with book value indirectly calculated via accumulated depreciation.<\/p>\n
    \n
      \n
    • (Debit) Fixed Assets 900\u3000\u3000\u3000\u3000<\/strong>(Credit) Bank 900<\/li>\n
    • (Debit) Depreciation Expense 10\u3000\u3000\u3000\u3000<\/strong>(Credit) Accumulated Depreciation 10<\/li>\n<\/ul>\n<\/div>\n<\/div>\n
      Prepaid Insurance<\/strong>
      \nThanks to a year\u2019s insurance premium paid in the past, you can receive free or discounted treatment at a hospital this month.<\/p>\n
      \n
        \n
      • (Debit) Prepaid Insurance 80\u3000\u3000\u3000\u3000<\/strong>(Credit) Bank 80<\/li>\n
      • (Debit) Insurance Expense 10\u3000\u3000\u3000\u3000<\/strong>(Credit) Prepaid Insurance 10<\/li>\n<\/ul>\n<\/div>\n<\/div>\n
        Supplies<\/strong>
        \nOf the supplies paid for in the past, the portion consumed this month is deemed to contribute to this month\u2019s revenue.<\/p>\n
        \n
          \n
        • (Debit) Supplies 90\u3000\u3000\u3000\u3000<\/strong>(Credit) Cash 90<\/li>\n
        • (Debit) Supplies Expense 10\u3000\u3000\u3000\u3000<\/strong>(Credit) Supplies 10<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

          This principle of recording revenue or expenses based on the occurrence or change of economic events\u2014irrespective of cash inflows or outflows\u2014is called the accrual basis. Inputs into business systems, including accounting, are fundamentally accrual-based.<\/p>\n

          The Difficulty of Removing the Time Axis from a 4D Narrative to Return to 3D Cash Movements<\/h2>\n

          You might wonder, \u201cAfter all the effort to incorporate the time axis into real-world transactions and build a 4D narrative based on the accrual principle, why go back to 3D?\u201d However, while accrual makes sense in theory, in reality, cash determines a company\u2019s survival. To grasp this month\u2019s cash movements and balance, the accrual-based P\/L must be adjusted to a cash basis.
          \nCash flow management involves adjusting accrual-based performance entries to a cash basis to understand the movement of \u201cpure\u201d assets\u2014cash and deposits\u2014freely available for use.
          \nA company being profitable simply means it\u2019s showing a profit on the P\/L. To create a cash flow statement and obtain management information for addressing immediate settlements on a cash basis, adjustments are made for:<\/p>\n

          \n
          \n
            \n
          1. Expenses and revenues with receivables\/payables incurred but unsettled<\/li>\n
          2. Depreciation expenses<\/li>\n<\/ol>\n<\/div>\n<\/div>\n

            The Difficulty of Value Differing by the Context of 3D Objects<\/h2>\n

            In the real world, even identical products have different valuation amounts depending on whether they\u2019re from last month\u2019s inventory or produced this month. Since shipped goods mix both, the breakdown of cost of goods sold (COGS) is strictly:<\/p>\n

            \n
            \n
              \n
            • Last month\u2019s product inventory unit price \u00d7 shipped quantity<\/li>\n
            • This month\u2019s manufactured product unit price \u00d7 shipped quantity<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

              In other words, even products that appear identical in the real world differ in valuation based on when they were produced. \u201cManufacturing cost = COGS\u201d only holds in pure make-to-order production where only what sells is made. Businesses with large inventories tend to see greater divergence between manufacturing costs and COGS.<\/p>\n

              \n
              \n
                \n
              • This month\u2019s material purchase expense = This month\u2019s material purchase cost<\/li>\n
              • Cost of materials input this month from beginning material inventory and this month\u2019s purchases = This month\u2019s material cost (accrual)<\/li>\n
              • This month\u2019s direct labor and manufacturing overhead = This month\u2019s processing cost<\/li>\n
              • Cost of products completed this month from beginning WIP inventory, this month\u2019s material cost, and this month\u2019s processing cost = Manufacturing cost<\/li>\n
              • Cost of products shipped this month from beginning product inventory and this month\u2019s completed products = COGS<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

                In practice, due to Indonesian company law, internal resources, and managerial discretion, valuation amounts are calculated as accurately as possible and reflected in the B\/S\u2019s inventory assets section. However, miscounts during physical inventory checks result in incorrect figures.
                \nUnderreported material and WIP inventory is seen as heavily input into production, increasing manufacturing costs and reducing profit. Overreported inventory is seen as lightly input, decreasing manufacturing costs and increasing profit.<\/p>\n

                The Theme of \u201cWhat to Study as a Student\u201d<\/h2>\n

                During my student days, I was told to study English to adapt to global society and bookkeeping\/accounting to sharpen my economic sense.
                \nRecently, web programming\u2014enabling work anywhere in the world\u2014has surged in popularity. There\u2019s also the view that, rather than taking a long detour in life, students should learn how to earn money (entrepreneurship) to achieve financial freedom.<\/p>\n

                A British engineer kept saying \u201cdapter, dapter,\u201d and I had no clue what he meant. Later, I realized he was saying \u201cadapter\u201d\u2014even though we were discussing adapters.<\/div>\n

                It was common knowledge back then that English would be essential in the workforce. Even now, working in Indonesia, it\u2019s embarrassing to be a Japanese person with poor English among Indonesians who speak it fluently.
                \nProgramming left me with bitter memories from an elective computer science course where I used FORTRAN77 on 8-inch diskettes (later called floppy disks) to write dull logic. Had PCs and the internet been widespread then, I could\u2019ve studied web development for free anytime, anywhere.
                \nEnglish and programming spark motivation because you can envision yourself working coolly with those skills. But with bookkeeping\/accounting, being told \u201cyou\u2019ll be able to read financial statements\u201d conjures images of an old guy in a dimly lit accounting room, crunching numbers late into the night\u2014hardly an inspiring advantage for me.
                \nAs a humanities student with a vague major, I felt inferior to STEM students. My commerce degree leaned toward macroeconomics and financial economics\u2014an obscure focus\u2014so I was a low-motivation type who thought, \u201cAt least pass the bookkeeping exam before graduating as an idiot,\u201d to leave some trace of my studies.<\/p>\n

                Stories Lacking the Context of Company Continuity and Cash Flow Feel Suspicious<\/h2>\n

                Unless you\u2019re assigned to accounting or aiming to be a CPA, studying bookkeeping\/accounting a little makes you conscious of news on TV or online, wondering, \u201cWhat does this company (or person) sell to profit?\u201d or \u201cWhich account would this be booked under?\u201d
                \nWhether freelance, manufacturing, or services, all businesses are ultimately evaluated in monetary terms. Every transaction leading there is converted into journal entries, reflected in the P\/L and B\/S through a process. Even casual phrases seen online involve transactions:<\/p>\n

                \n
                \n
                  \n
                • Earning millions monthly
                  \n(Debit) Bank\u3000\u3000<\/strong>(Credit) Sales<\/li>\n
                • Successfully raised billions in funding (third-party allotment case)
                  \n(Debit) Bank\u3000\u3000<\/strong>(Credit) Capital<\/li>\n
                • Expanding to Indonesia as part of a Southeast Asia strategy (local subsidiary setup)
                  \n(Debit) Bank\u3000\u3000<\/strong>(Credit) Capital<\/li>\n
                • Made billions with Bitcoin (sold case)
                  \n(Debit) Bank\u3000\u3000<\/strong>(Credit) Cryptocurrency
                  \n\u3000\u3000\u3000\u3000\u3000\u3000<\/strong>(Credit) Gain on Sale<\/li>\n
                • Living as a freelancer while traveling the world
                  \n(Debit) Bank\u3000\u3000<\/strong>(Credit) Sales<\/li>\n
                • Living off passive income doing only what I love (blog affiliate)
                  \n(Debit) A\/R\u3000\u3000<\/strong>(Credit) Sales (upon confirmation)
                  \n(Debit) Bank\u3000\u3000<\/strong>(Credit) A\/R (upon transfer)<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

                  While launching a business generates sales and increases cash in the bank, sustaining it incurs constant expenses. For example, a company with 10,000 in capital can only afford 2,500 monthly expenses for four months. Unless sales replenish the cash (capital source) before it runs out, funds will dry up, and the company will collapse.<\/p>\n

                  In the month of incorporation, personal money becomes company assets (bank).<\/p>\n
                  \n
                    \n
                  • (Debit) Bank (Cash) 10,000\u3000\u3000\u3000\u3000<\/strong>(Credit) Capital 10,000<\/li>\n<\/ul>\n<\/div>\n

                    The first few months involve only expenses for office supplies or inventory purchases.<\/p>\n

                    \n
                      \n
                    • (Debit) Expenses 2,500\u3000\u3000\u3000\u3000<\/strong>(Credit) Bank (Cash) 2,500<\/li>\n<\/ul>\n<\/div>\n

                      Sales finally emerge the next month.<\/p>\n

                      \n
                        \n
                      • (Debit) Bank (Cash) 8,000\u3000\u3000\u3000\u3000<\/strong>(Credit) Sales 8,000<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

                        In short, business sales must repeatedly replenish cash in the checking account before funds run out\u2014a constraint of continuity. Without a clear image of this basic constraint and cash flow behind dazzling claims, they feel suspicious.
                        \nThis intuition might resemble what bank loan officers feel when assessing whether a borrower\u2019s business is sustainable and capable of repaying principal and interest.<\/p>\n

                        Even Illicit Cash Flows Involve Accounting Transactions<\/h2>\n

                        For listed companies, whose financial statements are assured as appropriate by external audits for securities reports (submitted annually to the state and stock exchanges for investor judgment), off-book transactions worth billions are nearly impossible. When illicit transactions are uncovered, they\u2019re typically reclassified under plausible alternative accounts.<\/p>\n

                        \n
                        \n
                          \n
                        • Reclassification to SG&A
                          \n\u21d2 Funds from Nissan\u2019s CEO reserve flowed as sales promotion expenses to Nissan Middle East, tunneled via an Oman agency to Ghosn\u2019s investment firm.<\/li>\n
                        • Circular transactions via paid provisions
                          \n\u21d2 Toshiba inflated sales by double-counting through paid provisions to outsourcing LCD manufacturing.<\/li>\n
                        • Transfer pricing as sales commissions\/consultant fees
                          \n\u21d2 Japan Credit Bank and Olympus shifted prices to local entities in the tax haven Cayman Islands for tax avoidance.<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

                          On April 4, 2019, former Nissan Chairman Carlos Ghosn was arrested for the fourth time on charges of violating company law (aggravated breach of trust) for illicitly transferring funds to Oman, causing harm to Nissan.
                          \nHis arrests on November 19 and December 10, 2018, stemmed from underreporting executive compensation by 5 billion yen, leading to false securities filings and violations of the Financial Instruments and Exchange Act.
                          \nThe dispute in the Financial Instruments case was proving Ghosn\u2019s personal misconduct, but naturally, underreported executive compensation (an SG&A item on Nissan\u2019s P\/L) might have been reclassified to another SG&A account.<\/p>\n

                          \n
                          \n
                            \n
                          • (Debit) Executive Compensation 5 billion yen\u3000\u3000\u3000\u3000<\/strong>(Credit) Checking Account 5 billion yen<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

                            On December 21, a third arrest for aggravated breach of trust occurred over shifting losses from a swap contract between his asset management firm and Shinsei Bank to Nissan, but he was released on March 6, 2019, as actual harm to Nissan couldn\u2019t be proven.
                            \nHowever, this company law violation (aggravated breach of trust) was pitch-black guilty. Beyond the 3.8 billion yen sent from Nissan via Nissan Middle East and Oman\u2019s SBA agency to Ghosn\u2019s investment firm, suspicions arose that funds for his luxury cruiser and his four children\u2019s Stanford tuition were booked as fictitious SG&A on Nissan\u2019s accounts, misappropriated for personal use.<\/p>\n

                            \n
                            \n
                              \n
                            • (Debit) Sales Promotion Expense 3.8 billion yen\u3000\u3000\u3000\u3000<\/strong>(Credit) CEO Reserve 3.8 billion yen<\/li>\n<\/ul>\n<\/div>\n<\/div>\n

                              Economic news labeled \u201cinappropriate accounting\u201d typically aims at tax evasion, personal misappropriation, or window dressing. All result in false securities filings, skewing P\/L and B\/S figures, with shareholders suffering the most.
                              \nNissan, an automaker, includes material and labor costs up to production in manufacturing costs. This incident stemmed entirely from the CEO Reserve\u2014a discretionary fund Ghosn could expend\u2014booked as SG&A.
                              \nThus, while Ghosn\u2019s fourth arrest undeniably damaged Nissan\u2019s image, it\u2019s worth emphasizing that the manufacturing sites producing goods bear no responsibility.
                              \nOn December 30, 2019, Carlos Ghosn illegally fled Japan to Lebanon.<\/p>\n

                              Tax Havens and Transfer Pricing<\/h2>\n

                              My first job was at a systems company under the former Long-Term Credit Bank. I was initially assigned to a team developing and operating overseas branch systems on AS\/400 using RPG (Report Program Generator) and CL (Control Language).
                              \nAmong the overseas branches\u2014London, New York, and other famous cities\u2014the Cayman branch stood out as peculiar, leaving me wondering, \u201cWhat\u2019s this?\u201d
                              \nA senior colleague explained that the Cayman Islands is a tax-advantaged zone, and nearly all Japanese banks have branches there for tax savings.
                              \nLater, I switched jobs to Indonesia and forgot the name until the 2013 Olympus loss-hiding scandal brought it back, with suspicious Cayman company acquisitions suddenly resurfacing as a nostalgic memory.
                              \nWhen real estate or financial assets incur huge losses, fair value accounting principles require loss recognition. In the 1997 Yamaichi Securities collapse\u2014around when I arrived in Indonesia\u2014hidden losses were \u201cflown\u201d by selling loss-bearing real estate at book value to an excluded affiliate, booking the loss there.
                              \nBut the Olympus case in 2013 was recent, and such blatant \u201cflying\u201d no longer worked. Instead, they overvalued a nearly worthless paper company in an M&A, generating slush funds to offset speculative losses by reclassifying them as M&A losses.
                              \nThe Cayman Islands exempt companies not conducting business locally from corporate tax, attracting shady tax-avoidance money from greedy foreign firms. This funds the government through setup, operation, and transfer fees\u2014a feat possible due to its small population.
                              \nThis is a classic Lanchester strategy. The island\u2019s roughly 50,000 residents reportedly live happily with near-zero taxes and robust social security.
                              \nIn reality, global giants\u2014including my former employer\u2019s parent bank\u2014set up paper companies in the Caymans, leveraging the branch for tax avoidance in various ways.
                              \nWhile this aligns with maximizing shareholder profit, common folk might jeer from the sidelines, \u201cAren\u2019t you freeloading on public services funded by our taxes without paying your own?\u201d
                              \nUnrelated, but a few months before I moved to Indonesia, a massive real estate loss from the bubble collapse surfaced at a leasing subsidiary of this bank. The dapper department head, seconded from the bank, was deeply involved, making an emergency appearance on News Station amid internal and external chaos.
                              \nThis incident ultimately triggered the bank\u2019s demise\u2026
                              \nGetting off track, Japan introduced transfer pricing taxation in 1986. Since I worked in Japan around 1995, expensing long-term bond profits to the Cayman branch\u2014though a separate entity\u2014as consultant fees or commissions would\u2019ve undoubtedly been flagged as transfer pricing.<\/p>\n

                              Royalties and Dividends as Accounts<\/h2>\n

                              When implementing an accounting system, preparing a chart of accounts is essential. For the Japanese HQ to recover investments from its Indonesian base, accounts like royalties and dividends are used.
                              \nRoyalties are often classified as Production Royalty under manufacturing costs or Sales Commission under SG&A, while dividends are typically Dividend Payable under liabilities.
                              \nRoyalties act like a tollgate between the Indonesian subsidiary and Japanese HQ, guarded doubly or triply by Indonesia\u2019s tax office, which may deny passage (deeming it transfer pricing) in the worst case.
                              \nEven if cleared (recognized as legitimate royalties to HQ), transfer pricing rules recalculate the amount, requiring a 20% PPh26 toll (withholding tax on foreign services).
                              \nHowever, Japan and Indonesia have a tax treaty, allowing a declaration like, \u201cWe\u2019ll pay a certain amount in Japan, so please apply a reduced rate in Indonesia.\u201d Submitting an Indonesian withholding certificate (Bukti potong PPh26) to Japan\u2019s tax office proves partial taxation in Indonesia, avoiding double taxation.
                              \nDividends are ideal for investment recovery, but Indonesia\u2019s tax office typically denies booking them unless the company posts operating profits for several consecutive years.<\/p>\n

                              Transfer Pricing and Profit Manipulation<\/h2>\n

                              Recently, when purchasing packaged software developed in Japan from a Malaysian branch, I was told, \u201cDiscounted sales could be seen as transfer pricing in Japan, so we can\u2019t offer preferential treatment just because it\u2019s Indonesia.\u201d
                              \nIt\u2019s disheartening that a discount offered in good faith, not for transfer pricing or profit manipulation, might be suspected by authorities.
                              \nIn Indonesia, \u201cfriend prices\u201d are risky. Offering \u201cno-profit deals for valued clients\u201d could be viewed as profit manipulation by the tax office, ultimately benefiting neither party, so we avoid it.<\/p>\n","protected":false},"excerpt":{"rendered":"

                              Accounting is a puzzle-like mechanism where a single transaction is recorded on two sides\u2014debit and credit\u2014incorporating the difference between expenses and revenues into net assets, balancing the equation “Assets = Liabilities + Net Assets.” Cash flow management involves adjusting accrual-based transaction entries to a cash basis to track the movement of cash and deposits.<\/p>\n","protected":false},"author":2,"featured_media":81223,"parent":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[683],"tags":[],"class_list":["post-57067","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-indonesia-accounting-tax-rule"],"_links":{"self":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts\/57067","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/comments?post=57067"}],"version-history":[{"count":0,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/posts\/57067\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/media\/81223"}],"wp:attachment":[{"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/media?parent=57067"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/categories?post=57067"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bahtera.jp\/en\/wp-json\/wp\/v2\/tags?post=57067"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}