Compute Offset Prepaid Tax Balance on Advance Receipt

Offset Prepaid Tax is an accounting method for the calculating debit balance in the prepaid tax account over a particular time period.

The debit balance is reduced to zero gradually. Business events such as receipt application, receipt refund and receipt reverse that happen after creating tax liability on advance receipt mandate the debit balance to be offset in the prepaid tax account.

Offset for Prepaid Tax Amount is equal to the Prepaid Tax Amount multiplied by the Receipt Applied Amount or Receipt Entered Amount. Offset computation includes these steps:

1. Apply Receipt to Transaction.

   The advance receipts are eventually applied to the transaction, which reduces the outstanding amount receivable from the customer. VISION CORPORATION creates a Receivables transaction against the customer FIRST SOFTWARE for the sale with an order value of $9600 plus 9% GST1 ($864) and 9% GST2 ($864). Transaction opening balance including applicable taxes is $11328.

   To reduce the open receivables, apply the advance receipt applied to the transaction. Navigate to Receipts workbench, apply the receipt to the transaction, and create accounting. The offset occurs for the balance in the prepaid tax account for each applicable transaction tax. The transaction tax is GST1 and GST2.

   You can also perform optional operations after the receipt is applied. Optional operations include:

   1. Unapply Receipt.

      After applying the receipt to an open transaction, the Receivables application lets you un-apply that invoice and apply it to another transaction.

   2. Receipt Refund.
   3. Receipt Reversal.

   There are scenarios where the business enterprise must refund the amount paid by the customer. Receivables offer the Refund feature in the Receipts workbench. When you click Issue Refund in Receipt workbench, a payment request is created in Payables for refund.

   In tax reporting for refund, if the tax regulations mandate to report receipt refund scenarios, you can develop a query to extract the data and generate reports from the database.

   When an advance receipt is recorded as an unapplied receipt, it must be reversed. Receivables allow such reversal in the Actions tab of the Receipts workbench by providing a reason for the reversal and the reversal category.

   This table shows the entries generated during the creating accounting process:

   Creating Accounting process

   Particulars	Dr. Amount	Cr. Amount
   Dr. Receivables Account	11328.00
   Cr. Revenue Account		9600.00
   Cr. GST1 Liability		864.00
   Cr. GST2 Liability		864.00

   To reduce the open receivables, click Unapply on the advance receipt applied to the transaction. Navigate to Receipts workbench, apply the receipt to the transaction, and create accounting. The offset occurs for the balance in the prepaid tax account for each applicable transaction tax. in the given example, the transaction tax is GST1 and GST2.

   The accounting entry for the receipt application:

   Accounting Entry for Receipt Application

   Particulars	Dr. Amount	Cr. Amount
   Dr. Unapplied Cash	2400.00
   Dr. GST1 Liability	216.00
   Dr. GST2 Liability	216.00
   Cr. Receivables Account		2400.00
   Cr. GST1 Prepaid Account		216.00
   Cr. GST2 Prepaid Account		216.00
   Total	2832.00	2832.00

   After applying the receipt to an open transaction, the Receivables application lets you un-apply that invoice and apply it to another transaction.

2. Unapply a Receipt.

   You can unapply the advance receipt applied to the transaction. After the receipt is unapplied, click Post to Ledger. Accounting entries are as follows:

   Particulars	Dr. Amount	Cr. Amount
   Dr. Receivable	2400.00
   Dr. GST1 Prepaid Account	216.00
   Dr. GST2 Prepaid Account	216.00
   Cr. GST1 Liability		216.00
   Cr. GST2 Liability		216.00
   Cr. Unapplied Cash		2400.00

   After generating the advance receipt with the tax liability, you can refund the advance receipt in Receivables.

3. Process Receipt Refund.

   There are scenarios where the business enterprise must refund the amount paid by the customer. Receivables offer the Refund feature in the Receipts workbench.

   If VISION CORPORATION refunds the amount to customer FIRST SOFTWARE, accounting entries are created for the refund transaction. This table shows the accounting entries:

   Accounting Entries for Receipt Refund

   Particulars	Dr. Amount	Cr. Amount
   Dr. Unapplied Cash	2400.00
   Dr. GST1 Tax Liability	216.00
   Dr. GST2 Tax Liability	216.00
   Cr. Refund Account		2400.00
   Cr. GST1 Prepaid Tax		216.00
   Cr. GST2 Prepaid Tax		216.00

   When you click Issue Refund in Receipt workbench, a payment request is created in Payables for refund. Accounting entries for the payment request are as follows:

   Accounting Entries for Receipt Refund Payment

   Particulars	Dr. Amount	Cr. Amount
   Dr. Refund Account	2400.00
   Cr. Supplier Liability		2400.00

   In tax reporting for refund, if the tax regulations mandate to report receipt refund scenarios, you can develop a Query to extract the data and generate reports from the database.

   After creating unapplied receipt on which tax liability created in Manage Tax on Advance Receipts UI receivables application allows to reverse the advance receipt

4. Process Receipt Reversal.

   There might be scenarios where an advance receipt recorded as an unapplied receipt and needs to be reversed. Receivables allows such reversal in the Actions tab of the Receipts workbench by providing a reason for the reversal and the reversal category.

   VISION CORPORATION reverses the unapplied receipt created for $2400. After the create accounting process is complete, the accounting entries are generated. This table lists the accounting entries for receipt reversal:

   Accounting Entries for Receipt Refund Payment

   Particulars	Dr. Amount	Cr. Amount
   Dr. Unapplied Cash	2400.00
   Dr. GST1 Tax Liability	216.00
   Dr. GST2 Tax Liability	216.00
   Cr. Cash Account		2400.00
   Cr. GST1 Prepaid Tax		216.00
   Cr. GST2 Prepaid Tax		216.00