There are many components to the sales tax process in QuickBooks. In the last post we reviewed the setup of sales tax items and codes to specify when an item was taxable and how much the tax should be.
The above graphic shows part of the window you will see when setting up or editing a customer. This is the Sales Tax Settings tab of that window.
As you can see, Greg Aackerman is setup with the Sales Tax Code RES. RES, a code setup by the QuickBooks user, indicates he is a reseller. Thus, no sales tax will be charged on his invoices by default.
Items also, must be setup as either taxable or not taxable. Again, it is the sales tax code that determines this.
The above graphic of the Edit Item window shows the sales tax code setting. In this case, the item Labor, by default falls into the Labor sales tax code, a non-taxable setting.
So how does this help us when it’s time to create a sales tax return?
Note the Tax column at the right edge of the line item portion of the above invoice. Brass hinges are normally taxable. But in this case, they are being sold on a resale basis to a customer.
The item Labor is always non-taxable and so is set to the sales tax code, Labor. You can see that no sales tax is generated on the invoice.
The Sales Tax Revenue report is one of two valuable sales tax reports in QuickBooks. You can find it at Reports->Vendors & Payables->Sales Tax Revenue Summary.
The columns are the sales tax codes. The Resale and the Labor codes were setup in the sample file just for this illustration. You can see how the invoice we created using these codes affects the Sales Tax Revenue Summary report.
Another report used in sales tax return preparation is the Sales Tax Liability report.
Note that the total sales in this report is $48,313.16.
Now let’s look at a profit and loss report.
The profit and loss says we had sales of $53,313.16 for the same period. Which is right?
Sales reports, including sales tax reports, tally the numbers from sales forms. Invoices, sales receipts, and credit memos.
The profit and loss report on the other hand, tallies all entries to income type of accounts, no matter what kind of transaction. Double-clicking on the Total Income line of the profit and loss will bring up a report showing all the transactions creating that total.
A search of that report reveals the following:
Someone has entered $5,000 to an income account in a deposit transaction rather than on an invoice or sales receipt.
This may not be a huge problem. There may be no sales tax owed on the $5000. But, it would be better if all income were recorded properly, on sales forms.
Then the reports in QuickBooks would show all income on all applicable reports. There would be no guessing and no searching to find discrepancies like the above.
Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor
12401 Orange Drive #136
Davie, FL 33330
954-414-1524
hector@garciacpa.com
