Tax Handling
Overview
When customers purchase a product or a service, usually a tax is charged on top of each line-item, or to the entire invoice. We need to create tax journal entries to distinguish taxes collected from the sales amount.
Configuration
Required parameters
Fields | Description |
---|---|
date | calendar date of when the tax item is issued |
amount | full amount of the tax item to be collected |
Required accounts
Account | Description |
---|---|
ar_account | debit account for tax collection. e.g. Accounts Receivable |
tax_payable_account | credit account for tax collection. e.g. Tax Payable |
cash_account | debit account for tax payment. e.g. Cash |
Walkthrough
John bought a hat from Amazon. The hat cost $10, and a 10% tax will be collected by Amazon.
Event #1: tax is invoiced
Amazon issue an invoice showing the cost of the hat, and the tax to be collected, expecting John to pay after receiving the invoice. The following shows the JE for tax portion of the invoice
Date | Account | Debit Amount | Credit Amount |
---|---|---|---|
01/01/2022 | ar_account | $1 | |
tax_payable_account | $1 |
Event #2: tax is paid
John received the invoice and paid immediately so he can receive his hat. The following shows the JE for tax portion of the invoice.
Date | Account | Debit Amount | Credit Amount |
---|---|---|---|
01/01/2022 | cash_account | $1 | |
tax_payable_account | $1 |
Updated about 1 year ago