How to balance an account?

[Jean-David Beyer]

On 03/16/2013 05:56 PM, Buddha Buck wrote:
> 
> On Sat, Mar 16, 2013 at 4:45 PM, Jean-David Beyer
> <jeandavid8 at verizon.net <mailto: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

I tried doing that, and it did not make sense to me at the time, so I
did it my way instead. As a practical matter, it does not seem to make
much difference.
> 
> 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.

We clearly disagree, but this disagreement does not make much
difference. As far as I am concerned, the end use tax on the book is as
much part of the cost of the book as the shipping charge is. I do not
feel I get any benefit by keeping one separate and the other one as part
of the cost. So I made them the same.
> 
> 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.  

I think I see what you mean. I diddled the tax I paid in 2012 for the
tax year 2011 to be like this. I found I already had an account,
Expenses:Adjustment (that had no entries in it) and made it pay the
$0.48, thus:the transactions involved in paying my end use tax looked
like this:

                                                 Debit Credit
2012-04-02 Roundoff Fixit                         0.48
           Fix Roundoff   Liabilities:EndUseTax   0.48
                          Expenses:Adjustment     0.48

2012-04-03 NJ Division of Taxation              177.00
           Balance Due    Exp.:Taxes:St.Income  305.00
                          Liabilities..EndUseTx 177.00
                          Crnt.Assets:Checking         482.00

The $482 was the actual value on the check I sent to the NJ tax man.



I suppose some years, the entry in Expenses:adjustment will be a debit,
and others a credit, and in the long run, should balance out to 0
(statistically speaking).