Accounts Receivable payments for taxes

R. Victor Klassen rvklassen at gmail.com
Sat Mar 23 09:44:06 EDT 2013


This almost handles it.  The one thing that comes to mind as missing is sales/Value Added Tax.

Under accrual, when we make a sale, we charge sales tax/VAT (on any part of the sale that is taxable).   That creates an entry under liabilities for sales tax payable.   One hopes that we are eventually paid, including the sales tax.  But it could be next year.  Under cash accounting the tax liability is incurred when the tax is collected. 

There is also the flip side of accrual vs cash accounting, and that is expenses.  A similar approach to that described by Derek can handle Accounts Payable.

On 2013-03-22, at 5:34 PM, Alex Aycinena wrote:

>> ---------- Forwarded message ----------
>> From: Derek Atkins <warlord at MIT.EDU>
>> To: Richard Geddes <richardcgeddes at gmail.com>
>> Cc: gnucash-user at gnucash.org
>> Date: Fri, 22 Mar 2013 10:45:01 -0400
>> Subject: Re: Accounts Receivable payments for taxes
>> Hi,
>> 
>> Richard Geddes <richardcgeddes at gmail.com> writes:
>> 
>>> Hello,
>>> 
>>> Gnucash 2.4.10, Linux.
>>> 
>>> I've been using the A/R to invoice and generate aging reports without
>>> issues.
>>> 
> 
> <snip>
> 
>>> 
>>> Is there a way to get A/R to generate an entry into Income:Sales:xxxx
>>> when the payment is made or a Tax Report that only considers payments
>>> made on invoices?
>> 
>> No.  Using the Business Features necessarily creates an Accrual-based
>> accounting.  You need to manually convert from Accrual to Cash-based.
>> 
>>> Thanks
>>> Richard
>> 
>>> Please remember to CC this list on all your replies.
>>> You can do this by using Reply-To-List or Reply-All.
>> 
>> -derek
>> 
> 
> Derek is right in-so-far as the accrual nature of the income numbers
> reported in Gnucash is concerned but that doesn't mean you have to
> file your taxes on an accrual basis nor that the conversion from
> accrual- to cash-basis has to be done outside the system.
> 
> You can think of the use of the AR features in Gnucash as an
> 'operational convenience' rather than a wholesale conversion of your
> books from cash-basis to accrual-basis. What you can do is to make an
> adjusting entry every year-end followed by a reversing entry at the
> beginning of the new year. Create an account structure such as the
> following:
> 
> Assets:
>  Accounts Receivable - Adjusted  <-- new parent account for existing
> AR account; type Asset; placeholder account
>    Accounts Receivable - Adjustment  <-- new sub account; type Asset;
> this is where you place one side of the adjustment
>    Accounts Receivable              <-- this is your existing AR
> account tied to the billing system; type AR; new parent account
> 
> Income:
>  Income - Adjusted  <-- new parent account for existing Sales
> accounts; type Income; placeholder account
>    Income - Adjustment   <-- new sub account; type Income; this is
> where you place the other side of the adjustment
>    Income:Sales:xxxx  <-- existing Sales accounts
>    etc.
> 
> Then make two entries a year, as follows:
> 
> On Dec 31 (or whatever date is your year-end):
> 
> Dr  Income - Adjustment account for whatever the balance of you
> Account Receivable account is
>  Cr  Accounts Receivable - Adjustment  for the same amount
> 
> Then on Jan 1 of the following year (i.e., one day later), reverse it:
> 
> Dr  Accounts Receivable - Adjustment  for the same amount
>  Cr  Income - Adjustment account for the same amount
> 
> These entries reduce your income amount by the amount of your AR which
> is how much you have billed but not yet collected, thereby getting you
> back to a cash basis.
> 
> Be sure to include the Income - Adjustment account in your Tax Report
> so that it reports an income total on a cash basis.
> 
> Also, the first year you do this, you have to handle a beginning of
> the year cut-off issue. If this is the first year you are using
> Gnucash or if you had no AR balance at the end of last year, you are
> all set. If you had an AR balance last year, then what you do this
> year will depend on what you did last year. You need to make sure that
> if you reported income last year that you collected this year, you
> don't want to include it again this year. But if you didn't, then you
> need to make the reversing entry at the beginning of this reporting
> year so that your income for this year is properly on a cash basis.
> 
> Alex
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