How to balance an account?

[Jean-David Beyer]

On 03/17/2013 09:18 AM, Mike or Penny Novack 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
>>
>> 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.
>>  
>>
> OK, I hope now my first question will make more sense. My second
> question might not apply to NJ at all. That was a question that depended
> on jurisdiction and my state is different than yours. At least you won't
> have THAT complication.
> 
> Now let's look at your transaction because it is clearly wrong. You
> didn't pay Amazon 15.91 because they didn't collect the NJ sales tax (if
> they DID collect the tax then there wasn't an unpaid liability to NJ,
> you don't pay sales tax twice! The debits and credits should have been:
> 
> debits:
> Expenses: Books 15.91 (memo line might say what book)
> 
> credits:
> Liabilities: Amex  14.87  (here you might include on the memo line that
> was paid to Amazon)
> Liabilities: NJ end use tax 1.04

You are right: I did not pay Amazon $15.91, though I would have had they
a business location in N.J. They would have been required to pay the
tax. They have no obligation to charge me the tax, though (no surprise),
they would charge me the tax. A few stores do not openly charge the tax.
A marketing ploy. But they must pay the state, so I imagine they raise
their prices accordingly to recover the expense.

I do not actually have an Amazon expense item. I have books, computer,
electronics, food, and so on accounts, though.

Now if I have a transaction where I buy a book, it would have

Debits
expenses:books       $14.87
expenses:e.u.tax     $ 1.04

Credits
liabilities:amex                  $14.87
liabilities:E.U.Tax               $ 1.04

Right? How come my credits and debits are opposite to yours?

Now at the end of the month, I transfer money from my checking account
to American express; assume I put $1000 other expenses on the Amex.

Debits
liabilities:amex    1014.87

Credits
Assets:checking                 $1014.87

And at tax time,

Debits
Expenses:StateIncomeTax 305.00
Liabilities:E.U.Tax     177.00
Credits
Assets:checking                  $482.00

What confused me is when I pay the taxes at end of year, the E.U.tax
balance would go to zero, but the e.u.tax would not. In thinking about
this more, this is what I want, but I thought I wanted it to go to zero
too -- a mistake in my thinking.
> 
> This is reasonable as you would have included the sales tax as part of
> the cost of the book had you bought it from a brick and mortar books
> store in NJ or from an on line dealer located in NJ who would probably
> have collected the tax.  You would no more have an expense account
> "Amazon" unless you had expenses with Amazon (say overhead fees) than
> you would for the supermarket where you buy food (you put that expense
> under "food", not the name of the store except perhaps in the memo line).
> 
> So if at the end of the year you learn that spread out over all your
> purchases that had "end use" as part of the expense there was a bit too
> much (or a bit too little). I'd credit (too much) or debit (too little)
> your miscellaneous expense account for that since you can't attribute it
> to a specific item. But if you don't have a miscellaneous for this sort
> of adjustment you could just pick at random any of the expense accounts
> where there was an item where the use tax component of its cost was more
> than the adjustment amount. In other words, in the end THIS book didn't
> cost 1.04 more than Amazon charged but just 0.56 more than Amazon charged.
> 
> Michael
>