Depicting Economic Activities through "Journal Entries"

2020/01/11

[Example Case] We sold 70 yen worth of goods to Customer Company C four months ago and 90 yen worth last month. Today, we sold 60 yen worth of goods. Given the condition that "if the annual transaction volume exceeds 300 yen, a 5% rebate will be applied retroactively," what kind of accounting treatment (journal entry) should be performed?

In first-year university bookkeeping courses, lectures often focus on how to prepare corporate financial statements. With textbooks full of technical terms in hand, students first "get used to calculation problems using a calculator" and then "highlight and memorize the wording of accounting standards"... Many of these transactions are difficult to imagine for those of you who were high school students until just recently. Nevertheless, students can be seen repeatedly practicing for exams to pass various certifications, learning "what kind of journal entry constitutes the 'correct answer'."

Routine sales activities, such as providing goods and services to customers and receiving payment, are essential to corporate management. The results are listed at the very top of the income statement as "annual net sales," but behind those figures lie various strategies for sales promotion. Although the "Accounting Standard for Revenue Recognition" published in March 2018 does not apply to all companies, rebates—which used to be handled differently by each company—are now classified as "variable consideration."

In conclusion, today's sales in the [Example Case] appear to be calculated as 49 yen. This is because it is stipulated that the "transaction price" should be calculated by deducting 11 yen (5% of the previous total sales of 220 yen), even if the rebate condition has not yet been met. However, in reality, we only "sold 60 yen worth of goods," and the rebate is merely a future possibility. Even if 60 yen is written on vouchers such as delivery notes and invoices, the journal entry says 49 yen... Perhaps this marks the arrival of a new era where "current" sales are determined by incorporating "future" rebates.

Generally, people may feel that journal entries are made "to prepare financial statements." In contrast, from the perspective that "journal entries might have the power to express a company's economic activities," one could flexibly derive an "alternative solution": recording sales as 60 yen while preparing for future rebates as a potential reduction in sales.

Furthermore, in "taxation," it seems that 60 yen is included in the amount of gross income. The journey of journal entries through bookkeeping, accounting, and taxation continues.