Because of a government rule, we are forced to charge taxes on Advance Payment we perceives from customers. Right now, the Advance Payment amount is deducted after the taxes are applied to the full amount of an Invoice, which would lead to incorrect calculations. The current scenario is:
Would there be an accounting way to solve this issue?
If not, is it possible to place a hook on the “Get Advances Received” button to call a custom function?
It will be more flexible to manage such entry using Journal Entry. You can treat Journal Entry as an Advance Payment Entry and adjust against the Sales Invoice. Since payment transactions doesn’t have special provision for the taxes, you will have to select tax account in it manually. Accordingly, you will have to update amount and rate in the Sales Invoice to ensure customer is not taxed twice.
Ideally, we will suggest you to apply taxes from a single transaction only. If you sent invoice to the customer at later date as well, it will have total tax amount calculated and booked in the respective accounts. Also, it will be easier for the user to create invoice, as they won’t have to recalculate amount and tax based on advance payment entry.
I forgot to mention that the Advance Payment we receive from the customer must not be treated as an Income. In fact, it is a deposit, so we owe the customer money, but the government wants us to collect taxes on this amount, even if it is not really an invoice. Pretty weird situation, I must admit. I tried every way possible with a Journal Entry, but I couldn’t figure a way to do it correctly.
Another alternative would be to create a partial Sales Invoice only, with payment (Is POS). For the reference of Customer, you can change the label of Sales Invoice to Advance Payment or something. It will be very easy to manage taxes in the Sales Invoice.
I have gone through the official documentation but it is not solving my purpose, explaining use case in brief -
1.) Customer has paid Advance of 5 lacs for which Payment Entry is created and on this 18% tax is also applied i.e. 90k.
2.) Now these advances are taken in “Deposit Account” (custom account head created in COA) to track the advances customer wise.
3.) Now while creating Sales Invoice of 1 lacs, taxes are again 18% and wants to adjust 59k (partial) from advance in which 50k is advance and 9k is taxes.
4.) Catch is Sales Invoice is getting created against default Debtors account head, and Payment entry was taken in “Deposit Account” so in advance table payment entry record is not fetching.
5.) Client doesn’t want to pass JV also.
6.) Wants to adjust allocated amount and taxes from advance.
If you or anyone can suggest an idea it would be a great help. I’ll do the custom development accordingly.
This is a tricky situation and it’s been a week I am trying to find ways to record the advance with a tax invoice. The tax invoice on submission should not record this amount as revenue but as a liability just like deferred revenue. But there is no start & end date to book this on monthly basis as revenue. It depends on the company to book this advance as revenue based on their progress billing.
