Recommending a multi-currency double-entry bookkeeping
Japanese people does not recognize a difference between Single-Currency double-entry bookkeeping “SCBK” and Multi-Currency double-entry bookkeeping “MCBK”. In western world in the US and EC, the difference of SCBK and MCBK are recognized visibly:
SCBK Currency denominated in transactions (TC) are translated into Book Currency(BK) so that Books and records are kept only in BC
MCBK Transactions are recorded by TC so that books and records are kept by TC.
For creation of balance sheets, there are two types of multi-currency double-entry bookkeeping (MCBK).
To clear a mechanical of MCBK, an example account journals are shown as follow:
When AB Products Inc. located in Tokyo, Japan buys X products from the USA, if MCBK is used, the journal will be:
AB Products of Japanese entity buy commodity X $10from US on credit
Debit: Purchase $10 Credit:
Account Payable $10
In case AB Products Inc. issues 20 dollars of stock in Japan and if MCBK is used the journal entry will be (current law does not allow stock issue denominated in foreign currency):
AB Products of Japanese entity issues $20 paid-in capital in Japan (Note ? Such FC denominated capital issues are not allowed under existing laws in Japan)
Debit: Cash $20 Credit:
Paid-in Capital $20
MCBK has been in use in Japan for about 140 years since the Meiji era. But its existence has not been clearly recognized. One reason for this is that the pioneers of the Meiji era who introduced bookkeeping to Japan did not stress MCBK, although they did provide education on SCBK. A second reason is that in Japan, liberalization of foreign exchange was delayed.
In Japan, Japanese people can not recognize such a mechanical of MCBK for 140 years. We could raise two reasons why that happned: 1. The foreign advisors introducing double-entry book in Meiji era only refers SCBK; and, 2. Only Yen is allowed in transaction for a long time because of strict foreign currency regulation.
We are not able to be in a position to disregard MCBK because 3 corporate accounting laws could cause some inconsistency internationally as well as some disadvantages domestically. This can be said that the fact that Paid-in Capital of business entity can be denominated in foreign currency, .could not be recognized. We may present an argument that it is best for entity to hold paid-in capital in the strongest currency. Business entity in Japan shall have such a currency tactics for its financial soundness in the severe global market competition After the Meiji era, businesses in Japan held capital denominated in Yen. With all twists and turns, the curve of the Yen with respect to other major currencies has been generally upward. Accounting policy is said to have become unexpectedly successful.
It can be said that to allow a paid-in capital only in yen under 3 corporate accounting laws could brought a success accidentally to business entity because of upward (in general) curve of yen currency owever, how will performance be in 21st Century? The Yen is a local currency. There are viewpoints stating that the Yen will be weak against currencies like the Euro.
No one can tell that the same is always true in yen in 21st century. There is a view that yen as alocal currency could get weaker against Euro.
Therefore, we maintain that accounting laws shall allow business entities to hold its paid-in capital denominated in stronger currency besides yen. There are several countries in EC such as UK and Luxembourg which allow business entity to hold paid-in capital denominated in the currency other than its own country.
New corporate law has been in force since May 1, 2006. It is said that this corporate law has responded to globalization and IT development of business entities. However, none has been referred to MCBK which is best fit for recordkeeping in globalization.
We may bring and advance MCBK to contribute the social wealth in Japan as well as India, China and Asian Market in the whole
“Double-entry bookkeeping is among the finest inventions of the humanbeing” - Goethe
