Things to check during a tax audit [Timing of recording sales and purchasing expenses]

Tax audits usually cover the most recent three fiscal years and last two days.

On the day of the audit, the audit will begin with a hearing about the company’s general situation, followed by a review of the books and documents that were the basis for the books, such as contracts, invoices, and pay slips.

I have experience dealing with a variety of tax audits, and there are always some points that are checked in every audit.

In this article, I will write about the things that are always checked during a tax audit.

Timing of recording sales and purchasing expenses

During a tax audit, the timing of recording sales and purchasing expenses is always confirmed.

For sales,

• When the goods are delivered
• For services, when the provision of the service is completed

Sales are recorded.

This is not the time

• When the sales invoice is created
• When the sales payment is received

(Although it may coincide with the above recording timing)

Even if the amount is not determined at the time when sales should be recorded, it must be recorded at the estimated amount.
(It will be revised in the period when the amount is determined)

In addition, for purchasing expenses,

• When the goods are delivered

(For items that are not sold immediately after purchase, they are recorded as inventory and become expenses when they are sold or disposed of)

• When the provision of the service is completed

purchasing expenses are recorded.

• When the deposit or prepayment is paid
• When the price of the goods or services is paid

This is not the time.
(Although this may coincide with the above recording period)

During tax audits, they will check whether sales and purchasing expenses are recorded at the appropriate time, especially around the end of the fiscal year.
(Even if there is a month difference in the recording period during the fiscal year, it is not as important as the end of the fiscal year, because there is no change in the income amount when viewed as a whole fiscal year)

It is especially important to pay attention to the recording period for amounts that are large around the end of the fiscal year.

Conclusion

In this article, I have written about the things that are always checked during a tax audit.

It is important to keep in mind that the standards for recording sales and purchasing expenses do not necessarily match the cash standards:

• When payment is received, it is sales
• When payment is made, it is a purchasing expense

These aren’t always correct.

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都築太郎税理士事務所/Tsuzuki Taro Tax Accountant Office

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