Accounting software useful for accounting work. It can automatically perform journal entry work that requires the use and processing of complex account items, and many companies may be introducing it to improve operational efficiency. In this article, we will discuss what accounts to use when purchasing accounting software. We will explain in detail the differences depending on the type of software and examples of journal entries for each expense.
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What is the account number when purchasing accounting software?
Accounting software is software that supports the creation of financial statements by recording journal entries and creating various ledgers. Many companies have adopted this software because it can smoothly record accounts that are difficult to classify.
The advantage of accounting software is that it can be used easily, even by people who are not used to using computers.
It is possible to manage data using spreadsheet software such as Excel, but accounting software has an easy-to-understand UI, so anyone can operate it without worry.
I will explain the account items in detail.
Different depending on cloud type and installation type
The cost of purchasing and using accounting software is accounted for differently depending on whether it is cloud-based or installed-based.
The details of the 2 software are as follows.
Cloud type… “Communication costs”
Usage fees (monthly/annual) for cloud-based accounting software are recorded as communication costs.
This is because cloud-based software uses the Internet to operate its services, and there is no need to install equipment to use the software.
Installation type…“Consumables cost”
Installed accounting software whose purchase cost is less than 100,000 yen will be recorded as a consumables expense regardless of the type of software.
This account is used because once the software is purchased, there is no need to pay additional fees.
On the other hand, if the purchase cost exceeds 100,000 yen,
- Recorded as intangible fixed assets and depreciated.
- Record as a lump-sum depreciable asset and depreciate it
- All expenses will be recorded in full due to special provisions for small and medium-sized enterprises with small assets.
It is a little difficult because it is divided into three parts.
There are no strict legal rules regarding account items.
There are no strict legal rules regarding accounting titles for accounting software, and creating your account such as “Accounting Software Purchase Expenses” is not a violation of the rules.
However, please note that there is a “principle of continuity” that states that the same transaction must be recorded in the same account, so it is not possible to change to a different account midway through.
Accounting software cloud-type accounts
We will explain the account details when purchasing cloud-based accounting software.
Recorded as “communication costs” regardless of amount
If you purchase cloud-based accounting software, it will be recorded as “communication costs” regardless of the amount.
Also, be sure to record each time you pay an expense, whether it is a monthly fee or an annual fee. Specific examples are shown in the table below.
[Journal example] Cloud-based software usage for 20,000 yen per month
| date | debit side | Credit side | overview |
|---|---|---|---|
| April 20th | Communication fee…20,000 yen | Ordinary deposit…20,000 yen | Purchasing accounting software |
Accounting software installation type accounts
The accounting method for accounting software installation type accounts changes depending on the purchase amount.
Costs less than 100,000 yen are recorded as “consumables expenses”
If you purchase installed accounting software for a purchase price of less than 100,000 yen, please record the entire amount as an expense and make the following journal entries.
[Journal example] Purchase of installed software for 60,000 yen
| date | debit side | Credit side | overview |
|---|---|---|---|
| April 20th | Consumables cost…60,000 yen | Ordinary deposit…60,000 yen | Purchasing accounting software |
Software costing more than 100,000 yen requires depreciation.
Installed software whose purchase price is 100,000 yen or more requires depreciation. Depreciation refers to the division and recording of fixed assets whose value decreases over time.
If you plan to use the accounting software for more than one year, accounting rules require that it be recorded as an intangible fixed asset and depreciated over a useful life of 5 years or less.
[Journal example] Purchase of installed software for 400,000 yen
・At the time of purchase
| date | debit side | Credit side | overview |
|---|---|---|---|
| April 20th | Software…400,000 yen | Ordinary deposit…400,000 yen | Purchase installed accounting software |
・Recognized as an expense in the first year
This table is for recording expenses for the first year at the end of the fiscal year.
Record the purchase price of 400,000 yen divided by the useful life of 5 years. (400,000 yen ÷ 5 = 80,000 yen)
| date | debit side | Credit side | overview |
|---|---|---|---|
| December 31 | Software amortization cost…80,000 yen | Software…80,000 yen | Accounting software depreciation |
Special provisions for lump-sum depreciation assets
There are two special cases for depreciation, the first being lump-sum depreciation assets. If the purchase price is 100,000 yen or more but less than 200,000 yen, the product can be depreciated evenly over its useful life of 3 years.
[Journal example] Purchase of installed software for 120,000 yen
・At the time of purchase
| date | debit side | Credit side | overview |
|---|---|---|---|
| April 20th | Lump-sum depreciation assets…400,000 yen | Ordinary deposit…400,000 yen | Purchase installed accounting software |
・Recognized as an expense in the first year
At the end of the fiscal year, we will record expenses for the first year. Calculate the amount by multiplying the purchase price by 0.334, which is the 3-year depreciation rate. (120,000 yen x 0.334=40,080 yen)
| date | debit side | Credit side | overview |
|---|---|---|---|
| December 31 | Depreciation expense…40,080 yen | Lump-sum depreciation assets…40,080 yen | Accounting software depreciation |
Special provisions for small and medium-sized enterprises
If small and medium-sized enterprises meet certain conditions, they can record the entire cost as an expense as a small depreciable asset.
However, this is limited to cases where the amount is less than 300,000 yen. The applicable conditions are as follows.
- Be a blue tax return corporation
- The number of employees in regular use is 500 or less (less than 1,000 employees acquired by March 31, 2020)
- Must not be an exempt business (if business started after April 1, 2019)
- The amount of capital or investment must be 100 million yen or less
- File a final tax return by attaching the “details regarding the acquisition cost of low-value depreciable assets”
Furthermore, even if the corporation has a capital or investment amount of 100 million yen or less, it will not apply in the following cases.
- If more than half of the total number of issued shares or investments or the total amount is owned by the same large corporation
- If two-thirds or more of the total number of issued shares or investments or the total amount is owned by multiple large corporations
- If there is a complete controlling relationship with a large corporation
- If all issued shares or investments are held by multiple large corporations within the group
- If you are a commissioned corporation
If you take advantage of the special provisions for low-value depreciable assets, the journal entry example will be as follows.
[Journal example] Purchase of installed software for 150,000 yen
| date | debit side | Credit side | overview |
|---|---|---|---|
| April 20th | Consumables cost…150,000 yen | Ordinary deposit…150,000 yen | Purchase installed accounting software |
Support-related expenses also require journal entry.
If you use accounting software, you will be required to journalize not only purchase costs but also support costs. The following are typical examples.
- Consumables expenses/office supplies expenses…This is often used when a fee is charged together with the purchase date of accounting software.
- Payment fees/membership fees…Often used by many companies. However, due to the principle of continuity, the same journal entry method must be continued for the following year.
The way tax accountants think about these matters varies greatly, so if you have any questions, ask a professional.
Introduce accounting software to promote the automation of accounting tasks
Accounting software is a powerful piece of software that can automate your company’s accounting tasks and make them much more efficient. The journal entry method is not difficult once you learn it, so we recommend that you start using it as soon as possible.
If you have any accounting questions, please refer to the information introduced here.
