Accounting has been described as the "language of business" (Guerrieri, Haber, Hoyt & Turner, 1992, p. 1). Accounting provides managers with the tools they need to plan effective and focus attention on deviations from that plan, direct day to day operations and arrive at the best solution to the operating problems faced by the organization. However, as the language of business, accounting is also used by those outside the organization to make decisions that directly affect the company. If the company is publicly held, this information is used by current and potential shareholders to determine whether management is meeting their expectations. Creditors evaluate the company's financial statements in order to determine whether or not to extend credit or to call in debt already owed. Potential employees evaluate the financial condition of the company to determine if they are attracted to the organization, and current employees may base their long-term employment plans on this same financial information.
So-called "American" companies (those with headquarters within the United States and those traded on American stock exchanges) recognize the need for consistent accounting standards and have developed those standards and principles. While much of the rest of the world has gradually adopted many American accounting principles, there remain significant differences between American accounting principles and those of other nations. In this increasingly global market, these differences can present problems for individuals attempting to understand companies based in different countries. This research examines some of the differences between American accounting principles and Japanese accounting principles.
American companies regularly produce two financial statements which are of particular interest, the balance sheet and income statement. In addition, ancillary financial statements, such as the statement of cash flow, may be prepa...