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Accounting for Inclusive and Exclusive Taxes

When you create a transaction line that does not include tax (tax exclusive), Receivables creates an entry in your Revenue account that is equal to the line amount. However, when you create a transaction line that includes tax, the revenue amount does not equal the line amount (this is because the line amount includes the tax for this line). Therefore, when creating accounting entries for tax inclusive lines, AutoAccounting deducts the tax amount from each line and creates a separate entry for each line and tax amount.

For example, the following invoice has both inclusive and exclusive taxes:

Line Number and Tax Code Amount
Line 1
Tax 1.1 @ 10% Inclusive
Tax 1.2 @ 20% Exclusive
Tax 1.3 @ 5% Exclusive 		110.00
10.00
20.00
5.00
Line 2
Tax 2.1 @ 3% Inclusive 		206.00
6.00
Line 3
Tax 3.1 @ 5% Exclusive 		300.00
15.00
Invoice Total: 656.00
Table 1 - 93. (Page 2 of 2) Accounting for Tax Inclusive/Exclusive Amounts

AutoAccounting will create the following accounting entries for this invoice:

Account DR CR
Receivables 656.00  
Revenue for line 1   100.00
Tax 1.1
Tax 1.2
Tax 1.3 		  10.00
20.00
5.00
Revenue for line 2
Tax 2.1 		  200.00
6.00
Revenue for line 3
Tax 3.1 		  300.00
15.00

As shown in this example, AutoAccounting automatically subtracts the tax amount from each tax inclusive line, then creates separate accounting entries for each invoice line and its corresponding tax amount.

See Also

Implementing Value Added Tax

Implementing Canadian Sales Tax

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