Outsourcing Bookkeeping at a Japanese Subsidiary: Data Entry Only or Monthly Review Included?

When a Japanese subsidiary outsources its accounting, it may assume that hiring a bookkeeping service means its accounting will be fully taken care of. This assumption can leave a gap between the scope of work the company expects and what the provider actually delivers. Bookkeeping services mainly involve entering journal entries into an accounting system based on invoices, receipts, and bank transactions. However, foreign-owned companies often need more: balance checks after data entry, the monthly close, and reporting to headquarters.

For this reason, it is important not to compare providers on price alone. Instead, check who will review the books after data entry and how complete the monthly numbers will be when they are delivered. This article explains how standard bookkeeping services differ from accounting outsourcing that includes a monthly review, and what Japanese subsidiaries should consider when choosing a provider.

1. What Bookkeeping Services Cover

Bookkeeping services are outsourced services in which a provider records a company's transactions in its accounting books based on documents the company supplies.

They typically include the following:

• Entering journal entries based on receipts, invoices, and similar documents
• Recording bank and credit card transactions
• Recording accounts receivable and accounts payable
• Entering expense transactions
• Preparing the general ledger and trial balance

Because they reduce the time spent on journal entries in-house, bookkeeping services can be a practical option for companies with few accounting staff. They can also suit foreign companies that have just entered Japan and have not yet hired accounting personnel. However, having transactions recorded is not the same as having the numbers properly finalized through the monthly close.

2. Data Entry Only vs. Outsourcing with Monthly Review

The main difference is how far the provider reviews and organizes the accounting data after it is entered.

The actual scope of services varies by provider and contract, so the service name alone is not a reliable guide. The key question is not whether a trial balance will be delivered, but what kind of review has been performed on it.

3. Why Journal Entries Alone May Not Be Enough

(1) Entering Transactions Alone Does Not Verify Balance Sheet Balances

For example, even if every bank transaction has been entered, the cash balance in the books may not match the actual bank balance. For accounts receivable, the company needs to check for long-outstanding receivables and missed cash applications.

For prepaid expenses, accrued expenses, advance payments, and similar accounts, old amounts may remain on the books unless someone reviews what makes up each balance. A monthly review examines what makes up the key balance sheet accounts and how they have changed since the prior month.

(2) Monthly Profit and Loss May Not Reflect Actual Performance

If only invoices already received are entered, costs whose invoices have not yet arrived will not appear in the books. For example, if an invoice for a service used in March arrives in April, processing it based only on the invoice date may understate March expenses.

In the monthly close, accruals and similar adjustments are considered as needed so that revenue and expenses are recorded in the correct period. This is especially important if headquarters reviews the subsidiary's profit and loss statement (P&L) every month.

4. Designing Bookkeeping Around Headquarters Reporting

For a Japanese subsidiary, completing the local books is not always enough. If headquarters uses its own chart of accounts, the subsidiary's local accounts need to be mapped to it. In some cases, each journal entry must also be tagged with information that headquarters uses for management purposes, such as cost center, department, or project.

If this information is not captured at data entry, entries may have to be reclassified in spreadsheets at month-end. When outsourcing accounting, it is therefore important to consider not only which accounting system the data will be entered into, but also how headquarters will ultimately use it. The bookkeeping process should be designed with both in mind.

5. What a Monthly Review Covers

The scope of a review varies by company, but it may include the following.

(1) Balance Sheet Reconciliations

Book balances for bank accounts, accounts receivable, accounts payable, fixed assets, accrued expenses, prepaid expenses, intercompany balances, and other accounts are reconciled to supporting documents. For the balance sheet in particular, the key is to be able to explain the basis for every balance.

(2) Analysis of Profit and Loss Fluctuations

P&L accounts are compared with the prior month and the same month of the prior year to identify accounts with large changes. If there are unusual movements, such as a sudden jump in sales or a missing expense, the reviewer checks for missing entries and timing errors.

(3) Consistency with Headquarters Reporting

If the subsidiary submits a reporting package to headquarters, the review also traces how the figures flow from the subsidiary's trial balance to the amounts reported to headquarters. When bookkeeping, the monthly review, and headquarters reporting are handled by different people or firms, the subsidiary itself may have to explain any differences between their figures.

6. Five Points to Check When Choosing a Bookkeeping Provider

When comparing providers, look beyond unit prices and check at least the following points.

(1) What Is Included in the Base Fee

Confirm whether the fee covers only journal entries or also includes bank reconciliations and a review of the monthly trial balance.

(2) Who Performs the Review

The strength of the checks depends on whether the person who entered the data is the only one who checks it, or whether a separate reviewer is involved.

(3) Whether the Provider Can Work with Headquarters' Accounting System

If entries must be made directly in an enterprise resource planning (ERP) system specified by headquarters, check what the provider can do within that system.

(4) Whether the Provider Can Communicate Directly with Headquarters in English

If the subsidiary has to relay information between the provider and headquarters every time, outsourcing may not reduce the internal workload as much as expected.

(5) Whether Tax Expertise Is Available When Needed

Bookkeeping can raise issues that call for tax judgments, such as the consumption tax classification of transactions or the treatment of entertainment expenses.

7. Distinguish Between Bookkeeping and Tax Services

Under Japan's Certified Public Tax Accountant Act, accounting work such as bookkeeping can be performed by providers who are not Certified Public Tax Accountants (zeirishi). However, tax representation, preparation of tax documents, and tax consultation performed at a taxpayer's request are defined as tax accountant services. In principle, only tax accountants, tax accountant corporations, and others permitted by law may provide them.

Accounting and tax are closely linked in practice. Day-to-day bookkeeping can involve tax judgments, such as the consumption tax classification of an entry or the tax treatment of a particular expense. When outsourcing bookkeeping, it is therefore worth checking whether the provider can properly consult a tax accountant or tax accountant corporation when a tax judgment is needed.

8. How Much Should You Outsource?

Not every company needs a service that includes a monthly review. If the subsidiary has an experienced finance manager who can handle balance reconciliations, the monthly close, and headquarters reporting in-house, outsourcing only data entry can be a reasonable approach.

On the other hand, outsourcing the monthly review along with data entry may be a better fit in situations like these:

• The Japanese subsidiary has no dedicated accounting staff
• The country manager also oversees accounting
• Headquarters requires monthly closing figures
• No one at the subsidiary can review balance sheet balances
• The company wants to outsource English-language accounting communication with headquarters
• The company wants consistently reliable books ahead of future tax filings and audits

When deciding what to outsource, it can help to look not only at the number of journal entries, but also at which accounting functions you want to keep in-house.

9. Summary

When choosing a bookkeeping service, comparing the price per journal entry or the monthly fee is not enough to understand how services differ. Some companies outsource data entry and have an in-house finance manager perform the monthly review. Others outsource the entire process, from bookkeeping to balance reconciliations, the monthly close, and reporting to headquarters.

For a Japanese subsidiary, the goal is not simply to reduce data entry work. It is to have a reliable process for producing both the local books and the accounting information headquarters needs every month. Also keep in mind that some requirements fall outside bookkeeping and monthly reviews. One example is preserving electronic transaction data under the Act on Special Provisions concerning Preservation Methods for Books and Documents Related to National Tax Prepared by Means of Computers (Denchoho).

RSM Shiodome Partners provides Japanese subsidiaries of foreign companies with accounting outsourcing, including bookkeeping, the monthly and year-end close, and reporting to headquarters. It also offers a wide range of back-office support for Japanese subsidiaries, including tax, HR, and labor services.

You may be unsure whether to outsource only data entry or the monthly close as well, or you may want to review your accounting operations, including headquarters reporting. In either case, a good starting point is to separate the work you currently handle in-house from the work you want to outsource.

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