• tom
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  • From: USA, FL, Tampa
  • Registered: 03/24/2009
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Topic: Tax Types and GL Accounts

When creating Tax Types there are 2 GL Accounts, Sales and Purchasing.

And in the Trading Co, they are both under Accounts Payable.
But (confused) one is named VAT IN and the other VAT OUT

Sales collects tax which needs to be sent to the proper tax collector and it is not our money so I guess I can see it going directly into an A/P account

But Purchasing pays tax on consumables and that is an expense, I can see that there could be reasons for keeping track of taxes paid for other reasons, but not in an A/P account.

Why isn't it set to an Expense account?

tom

tom's Website

  • Registered: 12/25/2007
  • Posts: 2,448

Re: Tax Types and GL Accounts

I guess this is simply how it is usually done. You can change  chart of acounts as you wish. In some charts both collected and paid taxes are posted to the same account. All this depends on local fiscal requirements and company accountant.
Janusz

  • tom
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  • From: USA, FL, Tampa
  • Registered: 03/24/2009
  • Posts: 326

Re: Tax Types and GL Accounts

Ya know I got distracted with the GL account numbers...

My real question is:

Why are there TWO GL accounts associated with a Tax Type?

FA calls them SALES and PURCHASING

How are they used?

tom

tom's Website

  • Registered: 12/25/2007
  • Posts: 2,448

Re: Tax Types and GL Accounts

This is related to the way how VAT payable/refund  is calculated. Some fiscal authorities require detailed reports on VAT flow with separated tax direction (incomeing/outgoing). If you are unsure you need two accounts on every tax consult your personal accountant. We are not US registered accountancy advisors wink.
Janusz

  • tom
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  • From: USA, FL, Tampa
  • Registered: 03/24/2009
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Re: Tax Types and GL Accounts

t sounds like a retailer may have to pay some VAT on the goods they purchase for resale and then that need to be able to offset what they have already paid vs what they collect from the customer.

(Am I guessing correctly?)

Generally in the US we file as tax exempt and then pay the taxes on any goods we consume.

My wife (for example) pays sales tax of List price and then if she sells anything at a discount she needs to request a refund of the difference.

You are being very helpful

tom

tom's Website

  • Registered: 12/25/2007
  • Posts: 2,448

Re: Tax Types and GL Accounts

Yes. In short: the VAT you have to pay as company is the VAT incoming from sales minus VAT you have paid to your suppliers in purchase prices. Thats all (in first approximation).
Janusz