Takashi Yamaguchi, English Speaking Japanese Tax Accountant

A tax accountant and electric files, you may make them useful

You may think that tax accountants are “good at math” and “tax specialists”.
However, unless they get information from clients, they cannot use expertise or knowledge.
So, I would like to talk about how you can make tax accountants (including me) work quicker, at cheaper, the better.

All start with numbers, end in numbers

You cannot talk about your business without numbers.
Sales price, cost of sales, wages and salaries, profit, social insurance premium and taxes, they all are expressed in numbers.
You may be able to hire someone (Social insurance and Labor Consultant, tax accountant, etc.) to outsource computation of such numbers, however, it is you, a proprietor who should take responsibility on the result of computation.
Besides, a proprietor is responsible to initiation of the numbers. 
Even if you can outsource bookkeeping, you should provide information of the numbers such as cash book, bank statement, expense receipts and invoices. Otherwise, tax accountant or accounting firm cannot deal with the numbers.
Such basic materials containing primitive numbers (primitive material) should be managed by a proprietor.   

The cycle of bookkeeping

Outsourcing of bookkeeping is initiated with gathering of primitive materials by either an accountant or staff of accounting firm visiting client, or the client sending the materials to the accountant or the accounting firm. Then the accountant will post journal entry on the book and create general ledger, trial balance. This is the routine of bookkeeping.
This routine will repeat until the fiscal year end then financial statements (balance sheet, profit and loss statement) will be prepared based on the final trial balance and carry-forward balance of each account subject is finalized.
This routine is called as “full cycle of bookkeeping”.

Even we use accounting software, this cycle does not change.
The software enables us to save time and effort to go through the bookkeeping cycle by automatic recording, posting and consolidating data entered as a journal. However it is we who can suggest what journal should be booked observing the primitive materials.
If we made wrong judgement, the software naturally works in wrong direction.

Streamlining bookkeeping process is to create  i) wasteless, ii) seamless, and iii) errorless flow of cycle of bookkeeping, in other words, life cycle of the numbers from beginning through ending.
As interruption of the flow would cause extra work to fill a gap of the numbers or error, we should minimize the interruption.

Design of the flow could ease burden of bookkeeping

There are various way to set where we should start and end but it can be exemplified in the blow two cases. 

  • Case 1 : a client who has certain accounting knowledge enters journal to the software based then handover rest of the flow to the external accountant (it should save professional fee paid to the accountant).
  • Case 2 : a client who has no accounting knowledge provides the primitive material to the accountant then ask the accountant take care of full cycle of the bookkeeping from scratch. (professional fee should be more expensive).

In any case, we cannot skip phase for “judgement” and “entry” of journals.
“Judgement” on what journal should be booked would require certain expertise but “entry” of such journal is a routine work.
In the above Case 1, the client makes initial judgement and entry then the accountant will review that process.
In the Case 2, whole process is outsourced.
Though the entry is a routine work, certain workload is essential whoever does it. Accordingly, the difference between the Case 1 and 2 is whether the client devote his/her more time to save the cost of outsourcing or pay more cost to save his/her time and effort.    

In any case, if there is any flaw in the flow of the primitive material to the journal entry, it may cause delay, error or even stalemate in judgement.  
Especially, you should bear it in your mind when you do outsourcing. 
Because, as mentioned earlier, external parties have no choice other than relying on the information and material provided from you and it is quite difficult for them to detect lack, duplication or invalidity of the information.
Therefore, they may make wrong decision based on wrong information.
Besides, even if all necessary information is correctly provided, they may have to spend plenty of time to sort out the information when they are poorly organized.  

If you outsource everything but want to save the cost, you should do preliminary work, as sorting out the material, reconciliation of cash or bank books, etc. by yourself before handover them to the external parties. It would save their time and cost.

Initiate the flow by digitalization of materials 

The primitive material should be kept for 7 years after tax filing (Corporation Tax Law (the CTL) Article 126, Ordinance for enforcement (the OE) of the CTL Article 59 para 1 item 3).

As a company needs to keep books and records for 10 years under the Company Act (Article 432 of the Company Act),  it would be safer to keep receipts for 10 years if possible.
Sole proprietor also need to keep the material. The blue tax return filing person should keep them for 7 years (Income Tax Law (the ITL) Article 232, the OE  of the ITL Article 102 para 4). Other tax return filing person, 5 years.

In tax audit, the auditors require you to present original copy of the primitive material.
If you are qualified to maintain books and records, the primitive material in digital format in accordance with the Electronic Ledger Storage Law, you may discard the original copy of them. Otherwise you should keep the original in paper format.

A tax accountant or accounting firm also need the primitive material but it does not have to be the original copy.
There may be some cases that confirmation with the original copy is needed.
Otherwise, accounting judgment usually requires just basis of numeric information, therefore image file of scanned document such as in PDF, JPG format or the Excel spreadsheet would be suffice.      

Digitalized material is easy to forward to a tax accountant or accounting firm.
In my case, I ask clients to upload the materials to a network share drive then download and work on them.
I do not have to visit the clients to pick up them, the clients do not have to make extra copies or deliver them.
Besides, if you save them in “searchable PDF” format, we can search document by keyword. It is quite helpful when we are looking for specific document.
Certain type of scanning machine is able to automatically name the files reading date and content of the document (see the blog “The latest scanner is awesome” for detail).
This kind of scanner would be powerful tool for digitalization and searching of the documents.
Once you have done it, it would be well done as a beginning of the accounting flow.

Chemistry of the cloud accounting and digital documents 

Conventional accounting software works only inside of your PC (so called “stand-alone” type software). 
Therefore, provide accounting data to external parties, you need to output them, i.e., either print out on paper or export to data file so that the external parties re-entry the data on their side.
In case of the cloud type accounting software (the Cloud Accounting), you can show the data on the cloud to external parties accordingly an accountant can directly see the data real-time basis.
Most of the could accounting employ artificial intelligence (AI) and able to suggest “prototype” of a journal based on information such as amount, name of vendor in the scanned documents.
Some scanners can directly upload the scanned primitive material to the cloud accounting.
With such scanner, you may be able to establish flow of accounting process that you scan the document, then AI suggests journal entry and an accountant or accounting firm reviews it, even if you do not know accounting. 
It means the it makes Case 2 above getting closer to the Case 1 and could reduce interruption of the flow. 

The cloud accounting is helpful as a communication tool with an accountant or accounting firm.
I have described it in my past blog  (sorry translation is not available yet). 
If you are interested in it, please visit here.


How did you find it?
If you are surrounded by piles of receipts and don’t know where to start, why don’t you buy the scanner and start digitalization?

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