We’d like to understand and learn more on the tax accounting.
-We’d like to record a payment through payment entry, and if we select payment type - pay,
then we would need to select party type. What is the best suitable party type?
(Creating a new party type can only be done by the system wide Administrator, only when it opens a party type in list view, and then in upper right corner, actions > create new party type)
-Does the ERPNext automatically record journal entries under chart of accounts when we register a sale which has the sales tax at the bottom of the invoice, does that sales tax we collected gets debited under the current assets? As per many guidances, collecting sales tax should be recorder as credit in liabilities, and debit in assets, but does the ERP do that automatically?
-When time comes for remitting sales tax to state and government, how do we record a such payment in the accounting? I read that it can be alternatively achieved via a classic journal entry, and doesn’t that mean we need to create two entries to record those funds paid out from liabilities and then another one to reflect credit from current assets? What happens with the other master accounts, like 400 - Income or 500 - Expenses? Our government says that state sales taxes are not to be recognized as expenses.
In tax accounting, the choice of party type in the payment entry depends on the nature of the payment. If you are making a payment to a vendor or supplier, you can select the “Supplier” party type. If you are making a payment to a customer, you can select the “Customer” party type. If none of the available party types are suitable for your payment, you may need to create a new party type, which can only be done by the system-wide Administrator.
When you register a sale in ERPNext and include sales tax on the invoice, the system will automatically generate the necessary journal entries. The sales tax collected will be debited to a designated liability account, typically referred to as “Sales Tax Payable,” and credited to the relevant revenue account, such as “Sales Revenue.” This ensures that the sales tax collected is properly recorded as a liability and the revenue is recognized.
To record the payment of sales tax to the state or government, you can create a journal entry. Debit the “Sales Tax Payable” account to reduce the liability and credit the appropriate bank or cash account to reflect the payment made. This will appropriately record the funds paid out from liabilities and the reduction in current assets.
In terms of the master accounts, such as 400 - Income or 500 - Expenses, it is important to follow the specific guidelines and regulations set by your government. If your government specifies that state sales taxes should not be recognized as expenses, you can exclude them from the expense accounts. You can consult with a tax accountant or financial advisor to ensure compliance with your government’s regulations and appropriately configure your chart of accounts in ERPNext.
Can the government agency that is being paid the sales tax be added as a vendor with the payment being made using a credit card? We make these payments using a credit card as the terms of the credit card give us a 5% cash back on all spending.
How to setup the sales / service invoice to record the sales tax into the vendor record while still showing the sales tax amount going into the GL sales tax payable account and then setup the credit card to make it available as a payment method when making the sales tax payment.
Making the payment leads to another issue, when visiting Accounting → Payment Entry → Add Payment Entry to record the payment, there doesn’t seem to be a way to select anything other than a bank account as the source for the payment. My mind is leading me to what sounds like a convoluted solution.
For my country when we purchase goods from local company then seller charges VAT.
We pay full amount to them and they pay VAT to government.
And for us we need to fill VAT reports to government and then government refunds VAT amount back that we paid.
Then 2nd case is when we purchase goods from other countries companies.
In such case we pay seller without VAT. But once item arrives in country we need to pay VAT when it’s being imported and we do that with bank transfer.
And then when we submit VAT report we will get that paid import VAT refunded back from government.
I’m really confused of how to do this with ERPNext.
Local purchase input tax can be booked in purchase invoice may be routed from PO if needed. Purchase tax and charges is the main handler within the doctype where particular input GL account is tabulating and reporting VAT for each transaction. General Ledger Report for this particular VAT account can populate you a statement for compliance filings. Payment Entry or Journal Entry both can book VAT payments towards government and same story for VAT Refund.
On the other hand for import, purchase order or Invoice with foreign currency generally does not require to be booked with VAT But Payment Entry is equipped with tax and charges section where you can also record VAT along side your foreign payments. Using same input GL account will also list out payment Entry in General Ledger Report will help you file VAT same like case 1. The refund record will remain same as case 1 too.
Would you know the import VAT amounts right before receiving the goods as normally government does not release untill all import VAT is paid. If yes, you can keep the PO in a draft state (or ammend if you need to submit) and keep the link accurate
yeah items are released only after all VAT and customs fees are paid. Also government values items based on currency rate that’s effective on day they arrive in country. So at purchase time you wouldn’t know exact VAT amount.