How to balance an account?

Buddha Buck blaisepascal at gmail.com
Sat Mar 16 17:56:00 EDT 2013


On Sat, Mar 16, 2013 at 4:45 PM, Jean-David Beyer <jeandavid8 at verizon.net>wrote:

> Here is a typical transaction:
>
> 2013-03-14 Amazon.com                                      15.91
>            Hang On To Your Kids Expenses: Books            15.91
>                                 Liabilities:American Express     14.87
>                                 Liabilities:EndUseTax             1.04
>

I don't think this is quite right.  I think I would account for it as
follows:

2013-03-14 Amazon.com -- Hand On To Your Kids
    Expenses:Books: Debit 14.87
    Liabilities:American Express Credit 14.87
    Expenses:Taxes:EndUse: Debit 1.04
    Liabilities:UnpaidTaxes: Credit 1.04

You didn't spend $15.91 on the book, you spent $14.87 on the book, and
$1.04 on end use taxes.  You paid for it with $14.87 from American Express,
and $.104 from the Unpaid Tax liability.

>
> Note 1: The amount on the American Express line is what Amazon actually
> charged me for the book, including shipping, and notified American
> Express about it. I pay that at the end of the month.
>
> Note 2: The amount of the EndUseTax line is the amount that is due the
> State of New Jersey for the purchase of that book. I have to pay this
> tax with my state income tax.
>
> Now at tax time, do I arbitrarily take some transaction of the year,
> and, in my case, reduce the EndUseTax and the Expenses:Books lines by
> $0.48? If I do, that item would be incorrect, and if the N.J. tax
> auditor were to look at that item, he would rule I am cheating the state
> of $0.48, and then do a more severe audit. Realistically, I imagine this
> will never happen, but it would be wrong and I would have trouble
> swearing that transaction was correct when actually I had made it
> incorrect.
>

I would expect the transaction at the end of the year would look something
like:

2014-04-15 New Jersey State Taxes
  Expenses:Taxes:Income Tax: Debit $5432.00
  Liabiliies:UnpaidTaxes: Debit $32.45
  Expenses:Taxes:EndUse: Debit -$0.45
  Assets:Prepaid Taxes: Credit $5342.32
  Assets:Checking: Credit $121.68

The negative debit to the end-use expense is designed to cancel out the
$0.45 that the State Tax form says you aren't supposed to pay.  If the
Auditor questions it, you can say (honestly) that you were accounting for
the rounding down to the dollar the State says you can do.  The worst the
auditor is likely to do is say "oh, that's not how you should deal with
that, here's how".  But how you should deal with it is likely something
like this, and this won't raise alarms.  The correction is associated with
the transaction where the taxes were paid (not with a random other
transaction) and the individual transactions involving an end use tax are
all correct.

Keep in mind, though, that I'm (a) not an accountant, and (b) not an
accountant in your jurisdiction.  I could be completely wrong.  If you want
competent advice, the best advice I can give is to speak to an accountant
familiar with NJ tax law.


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