Sales Tax Adjustment in QuickBooks Online

 

Sales Tax Adjustment in QuickBooks Online Bookkeeper Supporting Services

Do you need to periodically sales tax adjustment you owe when using QuickBooks online. Well then you should read this article adjusting sales tax amounts in QuickBooks online.

If you have any questions about QuickBooks Online Sales Tax. You can leave them in the comment section below and I’ll do my best to help you and of course if you feel the article helped you I hope you will click following the blog and get updates on new articles that come out all the time.

Why you would adjust the Sales Tax Amounts?

You may well ask why you would adjust the sales tax amounts. QuickBooks online tells you that you owe. Well it could be that something happened outside of your QuickBooks sales and payments that changed the amount owed for a particular tax period.

For example you may get a…..

Late fee added to your upcoming payment for overdue tax in a prior period.

Or the opposite might be true you might get a credit for an accidental overpayment for money that was sent in before you started using QuickBooks online.

When do we adjust the sales tax amounts due?

So when do we adjust the sales tax amounts due?  For these or other reasons well

In QuickBooks online, the adjustment happens at the moment that you pay.

You simply increase or decrease the payment amount by the amount of the adjustment.

At the moment you pay the amount of the adjustment must be recorded into an adjustment account.

The adjustment account reflects the reason for the adjustment.

For example…. late fee for sales tax is an expense. Let’s add it to the chart of accounts.

from the bottom left we click accounting chart of accounts then in the top right click new the type obviously is expense and the detail type usually doesn't matter and you can discuss it with your accountant but just for simplicity we will put taxes paid but the name of it will be late fee for sales tax and of course we click save and close.

Now we're ready for our example let's imagine…

On November 22nd 2020 we paid the taxes due for the period of January to march. We paid 140 because 125 dollars was the tax and 15 is the late fee.

What the results will be in the trial balance?

What the results will be in the trial balance?  Well we know late fee for sales tax will show up for the very first time as fifteen dollars because that's the fee that we record. At the moment we pay and we know that what we owe to the Massachusetts sales tax department is $125.

So the amount we owe or the amount that QuickBooks online indicates that we owe will go down by $125 because that's how much QuickBooks online thinks we owe. and of course the cash in bank will go down by the full amount. it will decrease by the late fee and by the amount that we owe in tax because that's the total that we're paying.

How to record a payment with an adjustment?

If January to march the time period that we're paying for as we learned in a prior article to pay for this time period we click view return. Now instead of clicking record payment we click add an adjustment.

Add an adjustment and notice the account that we choose we require a reason and the reason is other in this case penalties and the adjustment date will be the date that we're paying and in our example we're paying January November 22.

Now the adjustment account reflects the reason and in this case it's the expense that we just added a moment ago late fee for sales tax and the amount of the adjustment which is the amount of the late fee in this example is fifteen dollars so we click add.

Now we know the amount that's due is $140 because we just added fifteen dollars for our late fee.

Now when we click record payment of course we choose the amount we confirm the payment date will be November 22. And the bank account where the money is coming from is the only bank account we have cash on hand. We click record payment. When we close the return paid window you can see that this has moved to the payment section of payment recorded in the total amount.

If we want to know why this is the total amount we can click view return and we can see what adjustment that we added and the gross sales and the amount owed and all the details once it's in the payment section of the sales tax center.

Trial Balance Analysis.

If we click reports and then we open the trial balance we can see the individual amounts. First we can see the amount of sales tax penalty has been recorded for the first time as fifteen dollars. But the most important account to open up and drill down is this Massachusetts department of revenue payable. Double click to see exactly what was recorded. notice it has the payment and the adjustment together on November 22.

So if I scroll to the right of the last two lines you can see first it was increased by the fifteen dollars. On the second to last row which was the adjustment. After this account was adjusted up. The payment was recorded in the full amount of the actual payment a hundred and forty dollars.

Overpayment Sales Tax.

Now what if we get a credit for overpaid past sales tax. Well we must assume that the reason for the overpayment sales tax was because of excess sales paid that was really part of sales income.

We will use that as our second example let's imagine

On November 25th we received a $12.50 credit from Massachusetts state sales tax department for an overpayment in a period before we started using QuickBooks online.

We assume the reason comes from a mistake on invoices where the extra money was recorded as sales tax when it was really part of sales income.

This time we will only record the credit before we record the payment on another date.

Why would we only record the credit without a payment?

Well we might need to report our financial statements after we got the credit but before we paid and the credit itself is a separate transaction.

11/ 26/2020, record the $12.50 credit adjustment to sales income. For the overpayment of sales tax in a previous period.

You must apply the credit to a specific past sales tax period.

We are applying it to the April to June of 2020 that will be the period that we apply the $12.50 credit.

What will be the result in the trial balance?

What will be the result in the trial balance? If we only record the credit and we don't record the payment.

Well the sales tax payable will decrease we owe less by the amount of the credit because they gave us a credit.

Sales income will increase because in this example the sales income account is the adjustment account.

We assume that it was understated we counted something as sales tax owed instead of sales income earned.

So again what are the terms we're 11/ 26/2020, we’re just recording the $12.50 credit to the April to June tax period.

Record Posting in QuickBooks Online.

So here is the April to June tax period that we're recording the credit to. in order to do that we click view return and we click add an adjustment to this specific tax period the reason for the adjustment is the credit the adjustment date is the date that they gave us the adjustment November 26th and in this case the adjustment account is sales and the amount we're adjusting is $12.50 .

We’re increasing sales and we're decreasing the amount of tax that we owe. we click add and now you can see that this has been decreased by the amount of the adjustment and that we only owe fifty dollars for this time period April to June.

Now we can just close this out and you can see that the amount overdue for April to June has been reduced to fifty dollars.

Trial Balance Analysis.

If we click reports trial balance you can see that if you double click sales you can see sales has been increased by the twelve dollars and fifty cents.

That we just adjusted and if you click reports trial balance and check the amount owed to Massachusetts department of revenue you can see that the adjustment for $12.50 decreases the amount we owe to that specific tax agency.

Record Posting in QuickBooks Online.

Now we will simply pay the rest of the sales tax so let's imagine

On November 27 we pay the fifty dollars remaining on the April to June tax.

Well we already know how to do that taxes we click the return of the tax period we're paying double check the amounts. Click record payment now the amount we're paying is the amount due after adjustment the payment date is November 27th and it's coming out of the bank account click record payment and we're done.

If you go back to the sales tax center you see there is no longer overdue and we have paid fifty dollars for the April to June time period.