Columns that reveal the world
- Getting up close and personal with the researchers -

We often hear reports that Japan's national debt has ballooned to 1000 trillion yen. To be honest, the figure is so large and astronomical that it is almost impossible for us citizens to comprehend it.
Please see the document below. It is a conversion of the general account of the nation for fiscal year 2011 published by the Ministry of Finance into one month's household budget for an average household.

Looking at this, we can see that a household with an income of only 400,000 yen is spending 750,000 yen. This means that the shortfall of 350,000 yen is debt. Where in the world are ordinary households managing such a ridiculous household budget? The reason why Japan's finances have ended up with such an outrageous amount of debt is thought to be because many Japanese people have little knowledge or understanding of "accounting" or the role or social function of "accounting."

Generally, when people hear the word "accounting," many of them think it means "financial calculation" or "the study of monetary calculation." This is not necessarily wrong. However, "financial calculation" itself is by no means the original role of "accounting."

"Accounting" in English is "accounting." This is the form of "account" with "ing" attached. "Account" can mean both a noun and a verb, and some people may know that there is an important idiom in university entrance exam English, "account for...". This phrase "account for..." means "to explain...", "to be responsible for...", or "to report...", and this is exactly the original meaning of "accounting."

Essentially, the world of "accounting" refers to a series of processes that involve "reporting and explaining" certain information that faithfully depicts the actual state of various economic activities taking place in our economic society, thereby enabling users of the information to make correct decisions.
However, most countries on Earth are societies with monetary economies, and "money" is what reflects and serves as the basis for calculations of daily economic activity, so the calculation results of "money" are simply used as the "measure" of "accounting."

"Accounting" is the process of accurately explaining economic activities, and there is a method of recording the information that supports it using a set procedure called "double-entry bookkeeping." First, let's start by learning that there are two types of "bookkeeping": "single-entry bookkeeping" and "double-entry bookkeeping."

When ordinary households think of "accounting" or "bookkeeping," they usually think of a "household account book" for the home and a "pocket money book" for children. This "household account book" and "pocket money book" are methods of recording only one-sidedly, either income or expenditure, in the calculation of "(income) - (expenses) = (balance)," and are called "single-entry bookkeeping."

Just like single-entry bookkeeping, double-entry bookkeeping involves the calculation of "income - expenditure = balance." However, by always breaking down and recording a fact or activity from two perspectives, it is possible to clarify the relationship between "cause" and "result," or give and take.

For example, say you purchase a car for 1 million yen. With "single-entry bookkeeping," you only record the expenditure of 1 million yen in cash to purchase the car. On the other hand, with "double-entry bookkeeping," you simultaneously record that the expenditure of 1 million yen in cash has decreased, but in its place, the increase in assets, namely the car, of the same value, is recorded.

In this way, "double-entry bookkeeping" allows you to understand the cause and effect of increases and decreases in assets such as cash, and as a result, you can manage your assets appropriately. Today, it is natural to adopt "double-entry bookkeeping" as a tool for explaining correct economic activities in corporate accounting and even at the personal level.

The oldest book on double-entry bookkeeping is called "Summa" and was written by an Italian mathematician named Luca Pacioli over 500 years ago, and the famous philosopher Goethe praised it highly in a passage of his book "The Apprenticeship of Wilhelm Meister" saying, "Double-entry bookkeeping is the greatest invention that human wisdom has ever produced." That is how wonderful a method of recording is for reflecting and recording our economic activity in monetary terms.

However, "accounting" does not equal "double-entry bookkeeping." "Double-entry bookkeeping" is simply a bookkeeping technique, and is ultimately a tool or means for calculations. To use a sports analogy, just because you learn the rules doesn't mean you'll become a better player or stronger, and just because you can do "double-entry bookkeeping" doesn't mean you immediately understand everything about "accounting." Mastering the concept of "double-entry bookkeeping" is an essential entry point for improving your understanding of accounting, and with that as a premise, it is even more important to learn accounting correctly.

Since double-entry bookkeeping is a common practice for companies, you would think that it would also be used as an accounting method by the national and local governments. However, what is frightening is that in Japan, most of the national and local governments do not use double-entry bookkeeping.

The accounting of the national and local governments involves creating budgets by comparing with the previous year, and simply spending the set budget within that year. Therefore, the records are based only on the idea of single-entry bookkeeping. Japan has enjoyed steady economic growth since the end of the war until the collapse of the bubble economy in 1990. Even if there was an excess of expenditure in a given year, both the national and local governments would make the budget for the following year, assuming that tax revenues would increase the next year. The fact that money-related matters have always been put off has resulted in the national debt of 1000 trillion yen and most local governments having fiscal deficits.

In 1999, when Shintaro Ishihara became the governor of Tokyo, the city was facing a huge budget deficit. In order to rebuild the city's finances, Ishihara asked the people involved, "How big is the total budget deficit of Tokyo?" and was told, "I know the pluses and minuses of each department, but I don't know the total." In other words, the reality was that the city had only kept records at the level of a single-entry pocketbook.
Under Ishihara, Tokyo began working on financial reconstruction. It took time to create new accounting and systems, but since the formal start in 2006, Tokyo has eliminated its fiscal deficit and is now financially sound.

"There is nothing more absurd than Japan's national accounting system. No developed country has a single-entry accounting system."
October 25, 2012. These were the words of Ishihara at a press conference when he resigned as Governor of Tokyo and ran for national office again. In addition, in his column "Japan" published in the Sankei Shimbun on May 14 of the same year, he said the following:
"Around Japan, the only countries that practice single-entry bookkeeping on the level of a Daifukucho are North Korea, the Philippines, and Papua New Guinea."
Japan is a country with a mature democracy, and the capital and securities markets that support it appear to be well developed, but when it comes to the accounting behind it, we have to say that we are a very underdeveloped country. Isn't it hard to believe that Japan, a developed country, has accounting at the same level as or even lower than developing countries?

In Japan, since the Edo period, it has been said that "A samurai never eats, but he holds a toothpick high" and "He never keeps money overnight." In other words, the idea that "it is uncool to talk about money" and "money is unclean" is deeply ingrained in the Japanese. In addition, Japan is a homogenous nation, and almost everyone lives with the same values, so there is a tendency to think that "they will understand without me having to say anything" and "they will understand without me having to explain," as in "tacit understanding" and "telepathy." In addition, the Japanese mentality of disregarding reports and explanations may also be the reasons for the emphasis on "accounting" and the weak support system for accounting work.

It is clear that "accounting" is important in daily economic activities. As shown in the table on the right, "accounting" has various areas and roles, each of which plays an important role in economic activities. However, I believe that studying "accounting" is a very important quality that enhances your human abilities as an ordinary "business person," even if you do not become an "accounting" specialist such as in "bookkeeping" or "finance," or even if you do not end up in a position to manage a company or play a central role in the company.

Learning double-entry bookkeeping, a tool of accounting, and cultivating the ability to "consider one thing from two perspectives" leads to developing the ability to think not only about oneself but also about others. "What do my associates and parties think about my words, actions, and ideas?" By judging everything around you from two perspectives, you will be able to develop consideration for others and self-control. This can be said to be the same as cultivating an "ethical sense" that is effective in solving problems such as bullying and corporal punishment. You will also be able to acquire the "ability to explain" necessary for living in an international community.

It is no exaggeration to say that in human society on this planet, "you can't do anything without accounting knowledge." Of course, those who want to specialize in the role and work of "accounting" can contribute more to society by becoming a specialist such as a certified public accountant or tax accountant.

Our daily lives are all part of economic activity, and accounting plays an important role in that economic activity. I hope you understand that accounting is an indispensable field for us to live our daily lives with peace of mind.

It is true that "where there is economic activity, there is accounting." In other words, "you cannot talk about economics without knowing accounting."

(Published in 2013)