@Patch, I think you are just stumbling over terminology. From an accounting viewpoint, receipts and payments differ only their numerical signs. And the Tax Summary allocates transactions to either sales or purchases based on signs, not whether you actually bought or sold goods or services. You could substitute a dozen other pairs of terms and have the same report (inflows/outflows, debits/credits, additions/subtractions, …).
The determination that matters is what account the transactions were posted too. When you bought the handset, it was posted to an expense account. When you returned it, whether by receipt or negative payment, it was posted to the same expense account, reducing the balance of the expense account. Only if you posted the return to an income account would it show up as increasing your sales. Remember, the Tax Summary report is not the Profit and Loss Statement. It is only a summary of taxable transactions that add to or subtract from the Tax payable account, organized by tax code.
It is increasing my sales and I want it to decrease my purchases. (I added the pre item return tax summary to the opening post to illustrate). I have posted the tax summary report only because it is available to all Manager users. The report I care more about it the localisation GST/VAT worksheet which has identical changes as it is based on the same tax code Sale/Purchase totals.
So my problem is how do I record a transaction in Manager to reduce my cash purchases after I have made a cash purchase and later return all or part of it?
At the risk of going off topic on my thread and never getting an answer to my current issue (which is actually the issue I want a workable solution for).
Unfortunately I suspect my problem is due to the limited capabilities of Managers current cash sales/purchases functionality. In contrast for business who make all sales and purchases via invoices I believe this functionality is available. The details of how it occurs I believe are, for Purchases:
The transaction relates to a sale or purchase component of the tax code because the user tells Manager it is a sale or purchase not because of the sign of the amount.
The changes in Managers behavior only effect transactions with negative “Amount” (which only occur if manually created and really only makes sense for product returns).
Item 3 in the above illustrations is there only to show compatibility with Manger later recording cash transactions against specific suppler / customer accounts. This is the subject of a different idea. Implementation probably involves, when a supplier / customer is specified putting the transaction through their account by posting an equal valued credit and debit.
@Patch, you need to explain your statement that a goods return will increase your sales income. Income is not determined by which column transactions are in on the Tax Summary. It is determined by the balance of relevant income accounts. Posting to an expense account and subsequently reversing the transaction does not touch an income account. So how can it increase your income?
When I purchase something for business, typically a 10% GST tax code is applicable. I record this in an expense account. Manager increment the total purchases and total tax on purchases paid against the 10% GST tax code. This information is displayed in the “Tax Summary” report. The same information is given to a localisation of type “Tax Summary”. It is used there to set the tax amounts for each tax code. So after this single transaction that would result in
If I physically return the item and record it in Manager by posting a negative value cash transaction to an expense account, Manager will assume it is a sale. The payment type setting only changes if I enter a positive or negative amount in the payment / receipt. In both cases it will be add to the total sales recorded against that tax code. This is show both in the “Tax summary” report and the localisation of type “Tax Summary” resulting in
Now if I actually provide a service or sell goods as part of my business for which 10% GST is applicable that will also add to my (real) GST 10% sales.
As a result what is reported in the tax summary (and GST Calculation Worksheet) as income will include my real income as well as the value of any goods I have returned.
This quantity is the first item in the printed GST Calculation Worksheet, labelled G1. It is one of the quantities reported to the tax department each time BAS (Business activity statement) is submitted.
I won’t pretend to have dived into details of localizations for Australia. I will only say you can’t claim your income has increased because a tax report puts a particular transaction into some box. You have to go back to the actual accounting. Maybe the report or localization are wrong, maybe not. But the circumstances are clear. Your sales did not increase. Net profit did, but not sales.
Unfortunately with how Manager currently behaves, it will report an increase in my sales. I believe this is independent of country and actual localisation reporting.
The error will currently occur with all cash returns for which a tax code used for both sales and purchases is applicable. To avoid it you would have to ignore the tax code totals and manually externally add up the respective income and expense account totals.
Are other Manager users getting this error? Particularly Manager users who need to report gross sales to their tax authority.
Calculate the Gross sales you will report to your tax authority using what ever method you normally do.
Simulate/enter a business cash purchase applying your normal tax code for a business purchase. To make it easy to see choose a large round number like 10000
Simulate you returning the goods a few days later and getting a full refund into your bank account (by entering your normal returned goods cash transaction into Manager).
Calculate the gross sales you would report to your tax authority using your usual method.
If your method of recording returned cash purchases works, your reportable gross sales Manager suggests should not have changed. If your reportable Gross sales has increased by $10,000 then there is an issue.
Note the only method I can get to work in Manager is it edit the original purchase transaction when returning all or part of a cash (not via invoice) purchase.
@patch you are confusing P&L sales and expenses with GST sales & purchases - they are not the same thing. The tax summary report, reports GST sales & purchases. That is, transactions where you have received GST and where you have paid GST. Where those transactions appear in the financial statements is unrelated. For example, BS transactions are also listed as GST sales & purchases.
Therefore the Worksheet is correct - it totals all the transactions where you have received GST (the phone refund) and where you have paid GST (the phone purchase). It is a common misunderstanding that GST reporting needs to reconcile with the P&L. If you sell a fixed asset, that is a GST sale but not a P&L sale, or if you buy Inventory, it is a GST purchase but not a P&L expense until it is sold.
At the end of the day, GST reporting is based on the final cash transaction, even though other transactions such as Sales / Purchase Invoices and Credit / Debits Notes get involved in the mix.
For example, you issue a sales invoice for 1000 + 10%. The customer returns half and you issue a credit note for 500 +10%. At this point the sales invoice and the credit note GST get offset under GST sales as no GST has been received. Then when the customer pays their account, the GST received matches the nett of the GST Sales (Invoice - Credit Note)
The credit note is not a GST purchase as there was no GST paid.
I am referring to what a Manager user will report to their tax authority because of purchasing then returning goods. In Australia it is G1, the first number entered in the Business activity statement.
From a software perspective, what reports users use to arrive at this number may vary. I’m mostly interested to know how to use Manager to report accurate figures to the tax department.
From an accounting perspective, the critical issue is, when I return the goods I purchased a few days earlier, was that really a Business sale (so increased my reportable sales) or was I reversing a purchase (so decreases my business purchases).
As an aside both MYOB and Zero will report this to the tax office as a reversal of purchase (no increase in sales). Zero implements it by having separate tax codes for purchases and sales.
I agree Manager calculates sales correctly when invoices are used. That is because the program abides by the users specification of the transactions pertaining to a “Sales invoice” (amounts increasing to decreasing the sales component of the tax code totals) or “Purchase invoice” (amounts increasing to decreasing the purchases component of the tax code totals).
When an invoice is not used (ie “cash sales”) Manager is currently using the sign of the “Amount” to allocate the transaction to sale or purchase component of the tax code. This is different to invoice based transactions when the “Amount” is negative. Which I believe is the fundamental problem.
Yes, because when you received the “refund” you received GST which was payable to the tax authority. The purchase and selling of the phone via cash transactions are separate and independent GST events.
Yes, because the invoice negative (or dr/cr note) is an adjustment to a prior GST event, it is not a separate or independent GST event.
Yes, because that was how the tax codes were structure when the GST was first introduced, however, when the codes were simplified, Zero couldn’t modify their programme structure or their clients historical data, so they remained lock into separate tax codes.
The Manager user choice to enter the transaction and return via a Manager invoice or a cash sale (a physical invoice is of course provided by the company who sold the phone to me & who I returned it to in both cases), does not change the underlying accounting transaction Manager is recording.
The difference is Manager software creates an accounting error when recording goods returned without entering an invoice. The error resulting in incorrect information being reported to the tax department if the transaction is entered into Manager without also entering an invoice in Manager.
Standing back a bit.
For an identical supplier interaction. I can calculate my reportable gross sales by entering it into Manager with an invoice, or any other accounting program or calculate it by hand and get one answer.
Or I can enter the supplier interaction into Manager without entering a Manager invoice and get a different reportable gross sales.
The fact that every Manager user who
needs to report gross sales and
has physically returned goods without entering an invoice in Manager
Will have reported incorrect information to there government.
That isn’t reason to justify the wrong reporting, it’s reason to fix it.
Then I look forward to you providing official links in which you can support this assertion.
Manager does not cause any accounting error to occur:.
Phone cash purchase - the expense account is debited and tax payable account is debited
Phone cash refund - the expense account is credited and tax payable account is credited.
As both accounts have correctly received offsets, there is no accounting error occurring.
Businesses who report actual sales or actual purchase for any or all taxation groups (for example Australia BAS item G1) (ie all tax reporting except where only the difference between sales and purchases is required), and
Record some purchases (or sales) in Manager without entering an invoice (cash sales), and
Sometimes return goods and get a refund.
Long term solution
Manager processes cash sale returns simply by entering a negative amount. The following table summaries the effect on tax code totals of the 4 cash transactions types:
Transaction Amount positive
Transaction Amount negative
Payments are typically made to a Supplier (Payee) for purchases. So a positive payment amount increases the Purchase component to tax code totals (Purchase made).
Payments are typically made to a Supplier (Payee) for purchases. So a negative payment amount decreases the Purchase component to tax code totals (Purchase returned).
Receipts are typically received from a customer (Payer) for sales. So a positive receipt amount increases the Sales component to tax code totals (Sale made).
Receipts are typically received from a customer (Payer) for sales. So a negative receipt amount decreases the Sales component to tax code totals (sale returned).
This process will be even more obvious to the user when cash sales are linked to customer / supplier reports.
This behavior would make Managers behavior:
Consistent with the accounting when returned goods are recorded for non cash sale (invoice entered into Manager)
Consistent with the description in Manager’s debit note guide
Consistent with all other accounting programs
My understanding of the underlying accounting process (buying an item then returning it and receiving a full refund, should have no net effect to the businesses reported sales).
Ensures reported sales (or purchases) are independent of the book keepers arbitrarily choice to enter transactions with or without an invoice.
Short term work arounds to avoiding the bug
Do not use cash sales in Manager. Supplier transactions will only effect the purchases component to tax codes, customer transactions will only effect the sales component of tax codes, goods returned will decrease the appropriate component of the tax code totals, and purchase then return of an item will have no net effect on Gross sales.
Where the return occurs in the same accounting period as the purchase, enter the return transaction with no tax code and also edit the original purchase transaction record (or the subsequently returned portion of it) to also remove the tax code.
Where the return occurs in a different accounting period: 1) enable the suppliers tab, 2) Enter a dummy supplier such as “Manager Bug”, 3) Enable the “Debit notes” tab 4) Enter a debit note returning the cash to the appropriate expense account and tax code, 5) Allocate the cash returned from the supplier refund bank entry to “Accounts payable”. When the bug is fixed the work around can be reversed and the extra tabs disabled again.
Note obviously none of these work arounds are really acceptable, simply because Managers current behavior is not acceptable.
On reflection it would be clearer if the transaction level type was “Sale” / “Purchase” not “Payment” / “Receipt” as shown in the earlier screen mock up and labeled above.