[GNC] how to link an expense (a tax) to a invoice being issued
Mattia Rizzolo
mattia at mapreri.org
Fri Oct 22 18:08:35 EDT 2021
Very well David, I shall do as you suggest then!
Thank you!
On Fri, Oct 22, 2021 at 10:50 PM <davidcousens49 at gmail.com> wrote:
>
> Hi Mattia,
>
> I think you summay has captured the essentials. Whether you use a Liability or
> an Asset Acciunt to record the value of the stamps will not matter in practice
> but an asset account more correctly reflects the actual situation.
>
> My description is appropriate when your business is using an "accrual" counting
> methodology. This primarily relates to the timing of the recording of income and
> expenses. Some jurisdictions allow a "cash" accounting basis usually unde a
> specific turnover or income threshold where events are recorded at the time the
> money actuallyexchanges hands.
>
> If you are passing the tax through to the customer, it is the customer who is
> actually paying the tax. You are in effect acting as an unpaid agent for the tax
> office. You are receiving back from the customer the amount you paid for the tax
> stamps so it is revenue and expense neutral. This is the primary reason it is
> not an expense for you.
>
> David Cousens
>
> On Fri, 2021-10-22 at 11:59 +0200, Mattia Rizzolo wrote:
> > Hi David, thank you for your insights!
> >
> > So, to highlight the differences between my thoughts and yours:
> >
> > * prepaid stamps as an asset, not a negative liability
> > * tax passed as-is to the customers are not actually expensed (since
> > the invoice would have as the "income account" to debit the
> > Assets:TaxStampsPrepaid or Liabilities:TaxPayableDeferred accounts
> > directly)
> > * when not passing the tax stamp onto the customer, that would be my
> > expense, without any direct link to the actual invoice.
> >
> >
> > Is my understanding here correct?
> > Especially, from a formality point of view, is it really correct to *not*
> > expense the tax stamps I'm passing over to customers?
> >
> > -Mattia
> >
> > On Fri, Oct 22, 2021 at 12:26:18PM +1000, davidcousens49 at gmail.com wrote:
> > > Mattia,
> > >
> > > When you purchase tax stamps in advance, they become a temporary asset of
> > > your
> > > business which you would expense at the time you attach then to an
> > > invoice.when
> > > you purchase the stamps you would credit your bank account by the amount of
> > > the
> > > purchase and debit an appropriate asset account (e.g.
> > > Asset:Current:TaxStampsPrepaid).
> > >
> > > If you don't pass the tax onto the customer it won't appear as a line item
> > > in
> > > the invoice and simply becomes an expense on your business. You would at the
> > > same time as you raise the invoice and attach the tax stamp create a
> > > transaction
> > > which credits the above asset account and debits an Expense:TaxPaid account.
> > >
> > > If you are passing it on to the customerthen create a secondline in the
> > > invoice,
> > > Add an appropriate description,set the Income account to
> > > Asset:Current:TaxStampsPrepaid and set the amount of the attached tax stamp.
> > > This will add the value of the tax stamp to the A/R account and credit
> > > Asset:Current:TaxStampsPrepaid
> > >
> > > On the other hand when you raise an electronic invoice and payment is
> > > deferred
> > > to a future date, then the tax component is a liability on your business
> > > which
> > > you would record inan account labelled something like
> > > Liabilities:TaxPayableDeferred.
> > >
> > > Again if your business is paying the tax and it is not being passed onto the
> > > customer then in parallel to raising the customer invoice you would create a
> > > separate transaction which credits Liabilities:TaxPayableDeferred and debits
> > > an
> > > expense account Expense:TaxPaid and there would be no line item in the
> > > invoice
> > > to the customer.
> > >
> > > If you are passing the tax onto the customer, then when you raise the
> > > invoice
> > > you add a second line for the tax , set the Income Account to your
> > > Liabilities:TaxPayableDeferred account and enter the amount of the tax
> > > payable
> > > in that line. This will create a credit to the
> > > Liabilities:TaxPayableDeferred
> > > account with a matching debit added to the sum of the other lines to the A/R
> > > account.
> > >
> > > Wehn your tax liability is paid your check account is credited by the total
> > > of
> > > the amount paid and the Liabilities:TaxPayableDeferred account is debited by
> > > the
> > > same amount.
> > >
> > > This is of course a generic treatment and may be altered by specific
> > > regulations
> > > and law which may apply in your jurisdiction.
> > >
> > >
> > > David Cousens
> > >
> > >
> > > On Fri, 2021-10-22 at 00:01 +0200, Mattia Rizzolo wrote:
> > > > Hi people!
> > > >
> > > > With the disclaimer that I'm keeping these books for myself, as I'm not
> > > > required by law to keep them at all, here I come ask you about this
> > > > specific tax.
> > > >
> > > > Also, this turned quite longer than I thought it would, actually while
> > > > writing my thoughts cleared quite a bit... :) Guess that's a kind of
> > > > "rubber duck debugging"!
> > > > For the quicker version go straight to below where I describe my case in
> > > > way more practical terms.
> > > >
> > > >
> > > >
> > > > Background:
> > > > When I issue an invoice I may (or may not) have to pay a 2€ duty stamp
> > > > and attach it to the invoice. That's an effect specific to the fact
> > > > that I produced a document, and I also need to attach such duty stamp
> > > > to credit notes, for example.
> > > > Now, if I do a paper invoice, I most likely already bought weeks/months
> > > > prior a stash of those duty stamps. Instead, if I'm doing an electronic
> > > > invoice, the payment for those stamp is deferred to the next quarter.
> > > > Furthermore, I may or may not (my choice) bill the customer for the
> > > > expense of this duty stamp.
> > > >
> > > > So I am a bit lost on how to properly account for this thing. To me is
> > > > an expense, that may or may not be charged back to the customer, but I
> > > > would also like to gather data on, like, how many invoices I'm issuing
> > > > that I am not billing the duty stamp on, so I wouldn't like to "hide"
> > > > them into some random expense/income account.
> > > > The different methods of actual payment of them (in advance or
> > > > postponed) surely doesn't help make it straightforward.
> > > >
> > > > Probably the hardest part is that I would really like to tie the expense
> > > > to each invoice. I have no clue if there even is a way to do that, but
> > > > it doesn't seem like there is one. Handling invoices through the
> > > > GnuCash invoice system makes it impossible to me to add random splits,
> > > > is there even a chance I could do this?
> > > > If not, guess I would be stuck creating a separate transaction manually
> > > > each time I issue an invoice. (in the below examples, I'm referring
> > > > specifically to the two splits that invoice Expenses:Tax:DutyStamps) and
> > > > simply "linking" that expense to the invoice by the memo field.
> > > >
> > > >
> > > >
> > > >
> > > >
> > > > To clarify and recap, here was my thinking:
> > > >
> > > >
> > > > 1. The accounts (simplified naming, I have a deeper tree):
> > > > Balance
> > > > Assets:Banks:Checking 500.00
> > > > Assets:Cash 50.00
> > > > Assets:AR 0.-
> > > > Expenses:Tax:DutyStamps 0.-
> > > > Income:Invoices 0.-
> > > > Liabilities:Tax:DutyStamps:Pre 2.00-
> > > > Liabilities:Tax:DutyStamps:Post 0.-
> > > >
> > > > I decided to separate the Pre and Post variant of duty stamps since
> > > > they are after all handled completely differently and stashing them
> > > > in a single account would only create confusion later on IMHO.
> > > >
> > > > 2. When I buy "paper duty stamps" (that can only be bought in cash…):
> > > > Debit Credit Balance
> > > > Assets:Cash 2.00 48.00
> > > > Liabilities:Tax:DutyStamps:Pre 2.00 4.00-
> > > >
> > > > Here the Liabilities:Tax:DutyStamps:Pre represents a sort of prepaid
> > > > expense, resulting in a credit for me, which is hence recorded as a
> > > > negative liability.
> > > >
> > > > 3. When I issue an electronic invoice for which I am *not* charging the
> > > > customer:
> > > > Debit Credit Balance
> > > > Expenses:Tax:DutyStamps 2.00 2.00
> > > > Liabilities:Tax:DutyStamps:Post 2.00 2.00
> > > >
> > > > This is what I would love to have in my invoice posting transaction
> > > > (the one that also bears A/R and Income), but that I fear my just
> > > > simply not be possible.
> > > >
> > > > 4. When I issue an electronic invoice for which I am charging it back:
> > > > Debit Credit Balance
> > > > Expenses:Tax:DutyStamps 2.00 4.00
> > > > Liabilities:Tax:DutyStamps:Post 2.00 4.00
> > > > Assets:AR 2.00 2.00
> > > > ?????????? 2.00
> > > >
> > > > To what should I match that AR? It ought to be some kind of Income,
> > > > but I am not really sure, it's not really an income is it? It feels
> > > > constrained to use Income:Invoices. I was half-thinking to match it
> > > > against Expenses:Tax:DutyStamps (similarly to what one would do with
> > > > credit card rebates), but GnuCash won't let me do that from within an
> > > > invoice. Or am I looking at this from the wrong side and I should
> > > > just get an Income:TaxCollection kind of account?
> > > >
> > > > 5. When I issue a paper invoice, not claiming back the duty stamp:
> > > > Debit Credit Balance
> > > > Expenses:Tax:DutyStamps 2.00 6.00
> > > > Liabilities:Tax:DutyStamps:Pre 2.00 2.00-
> > > >
> > > > And there follows the rest of the invoice; like with case 3, beside
> > > > this magic linking that I would love to have with these 2 splits and
> > > > the actual invoice, I think nothing more is needed.
> > > >
> > > > 6. For the paper invoice claiming back the duty stamp, it should be like
> > > > case 4 with the :Pre account, nothing else.
> > > >
> > > > 7. When I go to settle the postponed duty stamp and the end of the
> > > > quarter I suppose I'll simply do:
> > > > Debit Credit Balance
> > > > Liabilities:Tax:DutyStamps:Post 4.00 0.00
> > > > Assets:Banks:Checking 4.00 496.00
> > > >
> > > > And be done.
> > > >
> > > >
> > > >
> > > > Am I in the right direction? Do you spot anything totally wrong? And
> > > > how would you handle these details I'm unsure about?
> > > >
> > > > Thank you in advance for any thought and input you might be able to give
> > > > to me! :)
> > > >
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--
regards,
Mattia Rizzolo
GPG Key: 66AE 2B4A FCCF 3F52 DA18 4D18 4B04 3FCD B944 4540 .''`.
more about me: https://mapreri.org : :' :
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