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Subject Author Date
Accting for sales tax receipts in Q05 scott s. 03-28-2007
Posted by scott s. on March 28, 2007, 6:48 am
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 I do my accounting for my sked c business in Quicken. For a new
activity last year I now get a state sales tax receipt monthly based
on the gross sales, and I have to remit to the state quarterly.

the problem is the amounts are showing up on my income statement,
which I don't think is correct. I don't have a tax item assigned
to the categories, so my tax import is correct, but it doesn't
seem like this should show up in my financials.

ISTR that there was a way you were supposed to deal with this,
using a fictive asset account or something like that, but maybe
that was only on an accrual basis, and I am cash basis. I
assigned a different class to the sales tax items, so I can
filter them out, but that doesn't seem like the proper
approach.

I was thinking maybe when I pay the state, instead of posting
an expense transaction, I should maybe use the same income
category I use for the receipt, but with a negative number
so that my income and expenses are correct.

scott s.
.

Posted by Laura on March 28, 2007, 7:42 am
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>I do my accounting for my sked c business in Quicken. For a new
> activity last year I now get a state sales tax receipt monthly based
> on the gross sales, and I have to remit to the state quarterly.
>
> the problem is the amounts are showing up on my income statement,
> which I don't think is correct. I don't have a tax item assigned
> to the categories, so my tax import is correct, but it doesn't
> seem like this should show up in my financials.
>
> ISTR that there was a way you were supposed to deal with this,
> using a fictive asset account or something like that, but maybe
> that was only on an accrual basis, and I am cash basis. I
> assigned a different class to the sales tax items, so I can
> filter them out, but that doesn't seem like the proper
> approach.
>
> I was thinking maybe when I pay the state, instead of posting
> an expense transaction, I should maybe use the same income
> category I use for the receipt, but with a negative number
> so that my income and expenses are correct.

Perhaps Quicken is not appropriate for your use since it primarily reports
income and expenses. It is lacking the balance sheet accounts you need to
show a complete picture of your business.

A sales tax payable account should be a Liability account but I am not sure
how you set this up using Quicken. You can set up liability & asset accounts
in Quicken but you can not post deposits for sales and post the sales tax
collected to that account.

You might look into upgrading to the Home & Business version of quicken or
switching to quickbooks.


Posted by scott s. on March 28, 2007, 4:02 pm
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>
> Perhaps Quicken is not appropriate for your use since it primarily
> reports income and expenses. It is lacking the balance sheet accounts
> you need to show a complete picture of your business.
>
> A sales tax payable account should be a Liability account but I am not
> sure how you set this up using Quicken. You can set up liability &
> asset accounts in Quicken but you can not post deposits for sales and
> post the sales tax collected to that account.
>
> You might look into upgrading to the Home & Business version of
> quicken or switching to quickbooks.
>
>

Yes, I wsa thinking about that possibility. I've found in the past
that it is possible to make quicken look like a proper double-entry
system, although some things like journaling aren't really there.
I will have to go back to some reading on AP/AR and see how to
implement it. I think with the proper use of accounts, transfers,
and transactions it can work, though probably the best answer would be
accrual accounting in QB, but that's just too much work for minimal
benefit.

scott s.
.

Posted by TomYoung on March 28, 2007, 6:51 pm
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> I do my accounting for my sked c business in Quicken. For a new
> activity last year I now get a state sales tax receipt monthly based
> on the gross sales, and I have to remit to the state quarterly.
>
> the problem is the amounts are showing up on my income statement,
> which I don't think is correct. I don't have a tax item assigned
> to the categories, so my tax import is correct, but it doesn't
> seem like this should show up in my financials.
>
> ISTR that there was a way you were supposed to deal with this,
> using a fictive asset account or something like that, but maybe
> that was only on an accrual basis, and I am cash basis. I
> assigned a different class to the sales tax items, so I can
> filter them out, but that doesn't seem like the proper
> approach.
>
> I was thinking maybe when I pay the state, instead of posting
> an expense transaction, I should maybe use the same income
> category I use for the receipt, but with a negative number
> so that my income and expenses are correct.

Being on a cash basis doesn't mean you don't establish assets and
liabilities when appropriate, it only means you don't make accounting
entries until cash flows.

Insofar as your sales tax liability goes, set up a sales tax liability
account and post credits (i.e., increase your sales tax liability)
when you make your cash sales deposit entries. So, assuming today's
sales deposit is $108 ($100 in sales and $8 collected for sales tax)
you'd make a split entry deposit in your bank account, depositing $108
in the account, crediting Sales for $100 and crediting Sales Tax
Liability for $8. This would keep the sales tax from affecting your
bottom line.

If, for some reason, you want P&L visabilty to the sales tax but don't
want it affecting your bottom line, you could establish a seperate
"revenue" account for sales tax and a seperate "expense" account for
sales tax. Going back to our $108 example above, you'd split the
deposit between Sales for $100 and the sales tax revenue account for
$8. Then, you'd step over to your Sales Tax Liabilty account and
increase it by $8 with the offset being the sales tax expense
acccount. Net result: no bottom line affect. Plus, the amount in the
sales tax revenue/expense accounts (they should equal) at the end of a
quarter should be exactly the amount you send to the state
subsequently.

Tom Young


Posted by scott s. on March 29, 2007, 5:55 pm
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TomYoung wrote:
>> I do my accounting for my sked c business in Quicken. For a new
>> activity last year I now get a state sales tax receipt monthly based
>> on the gross sales, and I have to remit to the state quarterly.
>>
>> the problem is the amounts are showing up on my income statement,
>> which I don't think is correct. I don't have a tax item assigned
>> to the categories, so my tax import is correct, but it doesn't
>> seem like this should show up in my financials.
>>
>> ISTR that there was a way you were supposed to deal with this,
>> using a fictive asset account or something like that, but maybe
>> that was only on an accrual basis, and I am cash basis. I
>> assigned a different class to the sales tax items, so I can
>> filter them out, but that doesn't seem like the proper
>> approach.
>>
>> I was thinking maybe when I pay the state, instead of posting
>> an expense transaction, I should maybe use the same income
>> category I use for the receipt, but with a negative number
>> so that my income and expenses are correct.
>
> Being on a cash basis doesn't mean you don't establish assets and
> liabilities when appropriate, it only means you don't make accounting
> entries until cash flows.
>
> Insofar as your sales tax liability goes, set up a sales tax liability
> account and post credits (i.e., increase your sales tax liability)
> when you make your cash sales deposit entries. So, assuming today's
> sales deposit is $108 ($100 in sales and $8 collected for sales tax)
> you'd make a split entry deposit in your bank account, depositing $108
> in the account, crediting Sales for $100 and crediting Sales Tax
> Liability for $8. This would keep the sales tax from affecting your
> bottom line.
>
> If, for some reason, you want P&L visabilty to the sales tax but don't
> want it affecting your bottom line, you could establish a seperate
> "revenue" account for sales tax and a seperate "expense" account for
> sales tax. Going back to our $108 example above, you'd split the
> deposit between Sales for $100 and the sales tax revenue account for
> $8. Then, you'd step over to your Sales Tax Liabilty account and
> increase it by $8 with the offset being the sales tax expense
> acccount. Net result: no bottom line affect. Plus, the amount in the
> sales tax revenue/expense accounts (they should equal) at the end of a
> quarter should be exactly the amount you send to the state
> subsequently.
>
> Tom Young

Thanks Tom. I took a couple of trys before it sunk in, but now I have
the behaviour I want and my Income and Cash Flow statements reflect
what I believe to be correct data now.

scott s.
.

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