Understanding taxes and the income statement

[P M]

Thank you.  I think I am doing what you have done.  My problem is understanding why the 1.31 adds to Net Income instead of takes away from it when you create an income statement.  It seems like sales tax would take away from net income, no?  Is that what yours does?


________________________________
From: doncram <doncram at gmail.com>
Sent: Sunday, May 21, 2017 4:07 PM
To: Maf. King
Cc: gnucash-user at gnucash.org; P M
Subject: Re: Understanding taxes and the income statement

Got the tax table to work.  Per https://www.gnucash.org/docs/v2.6/C/gnucash-help/busnss-ar-setup1.html, the way to set up a tax table is under Business select Sales Tax Table, select New.  Call this Consulting Sales Tax, set the default type as "Percent", set the percentage to 7.  Then go back and edit the invoice to show 20.00 for Consulting revenue with Taxable set and with Tax included set to NO, and set Tax table = Consulting Sales Tax.  Then see "Print invoice" to see the invoice looks good, which it does.
7.1. Initial Setup - GnuCash<https://www.gnucash.org/docs/v2.6/C/gnucash-help/busnss-ar-setup1.html>
www.gnucash.org
There are many different ways to set up a business account hierarchy. You can start with the Business Accounts setup which is available from the New Account ...


I still had to find the invoice and "Post" it.  Then I had to find "Process Payment" for the customer, and select the posted invoice, and enter $20.00 being paid, then enter that.  This did properly record $18.69 of Consulting revenue, which I can see in Reports / Income & expense.  And in balance sheet I confirm it records $20 cash and also records $1.31 of Sales Tax on Consulting revenues.

So what Pete wants can be done.  Hopefully this helps. :)

On Sun, May 21, 2017 at 3:26 PM, doncram <doncram at gmail.com<mailto:doncram at gmail.com>> wrote:
I try to do what Pete needs, but get stuck where I need to create a Tax table.

In my test company, I created an Income account for Consulting revenues and a Liability account for Sales Tax Payable.  If I received the $20 in cash I would want to enter a transaction that would implement the following journal entry

Cash                                $20
Consulting revenues                     18.69
Sales tax payable                             1.31

When I create a new invoice for a customer that i created, at first I didn't see how to make any split transaction or otherwise include the sales tax.  However, I find that a kludgy way that works to add a line for 18.69 amount for Consulting revenues, i.e. 1 unit at cost/unit of $18.69, and add another line for a unit of Sales Tax Payable at 1.31.  Printing an invoice, I see that looks unprofessional, as the invoice form allows for taxes to be included on a separate line below all components of work that the client is being billed for, but it does present a bill for $20 in total.

It seems like what is needed is to have just one line in the invoice, with 18.69 amount and "Tax included" set to NO, or with 20.00 and with "Tax included" set to YES.  Then a linked "Tax table", where 7% rate is set somehow, is supposed to do its magic.  However I don't see how to create a Tax table;  it does not seem to be included in "Help".

So can anyone advise more specifically how to set up the invoice that Pete needs?

Don

On Sun, May 21, 2017 at 5:17 AM, Maf. King <maf at chilwell.net<mailto:maf at chilwell.net>> wrote:
On Sunday, 21 May 2017 00:33:49 BST P M wrote:
> Very basic problem here.  I made an invoice for a service that I did.  I
> received $20.  Where I live I have to charge 7% tax.  So the revenue is
> actually $18.69 and the tax is 1.31.    My invoice has a subtotal of $18.69
> and a tax of 1.31.  I post it and get it paid and for some reason my tax
> expense is a -1.31.  In other words my net income is boosted by $1.31 as
> opposed to decreased to $1.31.  Why is this?  Is this because I haven't
> actually paid the sales tax yet and I close it out later?
>

Hi,

If your sales tax works anything like VAT does here in the UK, the tax you've
collected isn't an expense to you...  you should record the tax portion  as a
liability - it isn't your money, it belongs to the government, you are just
"looking after it" for them.

HTH,
Maf.


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