I’ve been playing with ERPNext to see if I can move a small business from GNUCash to ERPNext. I’m wondering the preferred way to setup sales tax for purchase (in the United States).
I went through setting up the tax template - my test transaction adds the sales tax to the separate tax account. However, I believe this should be accounted for under COGS. In GNUCash, I was just adding a line for sales tax and marking it under my COGS account. Should I create a “Sales Tax” item and just add that to my purchase invoice? Or am I missing something else?
In ERPNext, the preferred way to handle sales tax for purchases in the United States is by setting up tax templates correctly. Sales tax is typically not included in your Cost of Goods Sold (COGS) account but is recorded in a separate tax liability account, as it represents an amount you owe to tax authorities rather than an expense. To set this up, ensure you have a liability account, such as “Purchase Tax Payable,” in your Chart of Accounts. Next, create a Purchase Tax Template, specifying the tax rate and linking it to the appropriate liability account. When creating a Purchase Invoice, apply the tax template, and ERPNext will automatically calculate the tax and book it to the liability account.
Sales tax in the US works a bit differently than value added tax systems. In the US, sales tax spent on purchases is just a straight expense and, thus, would indeed usually be part of COGS. There’s no accrual.
It depends on the kind of reporting you want to do. The tax templates can use any account you want, if I’m not mistaken, so you could just define a template that lists your COGS account as the heading for recording the sales tax expense. Alternately, ERPNext allows you to designate multiple different accounts as comprising Cost of Goods Sold, as described here:
Played around with it a bit tonight. It seems like the Account Head on " Purchase Taxes and Charges Template" has to be of type Tax, so I can’t set it to COGS which is of type Cost of Goods Sold
I suppose I could create a new “Chargeable” type account COGS: Tax or something