Account Payables

Account Payables

Account Payables are one of the very first items which are highlighted during tax audits. In principle ,tax deductibles for income taxes are recognized on accrued basis based on fact that services and goods are delivered. Payables which are not settled for an extended period of time are subject to questioning from the tax auditors. Also, for payables which had been waived by the creditor, gain from forgiveness of debt must be recognized at the time of notice.

In any case, your closing financials does not have to reflect the expense deductible of the Japan Tax Code. As long as it is adjusted at the point of calculating taxable income, you are not challenged during tax audit. Therefore, whatever accrual basis the company is applying to the global operation, it can be used for the Japan business in most cases. But please note that the accounting principle needs to be consistent from year to year. Justifiable reasoning needs to be in place when accounting principle change.