Goods return (Cash sale/purchase) causes Gross Sales error

[Patch]

When I returned the phone handset I made a negative quantity purchase, I didn’t start a phone handset retail business.

Manager keeps track of sales and purchases for each tax code internally.

So to reflect in Manager what was done in reality I needed a way to reduce my purchases for that tax code when the phone handset is returned not increase my sales.

I had assumed the way to reduce my purchases was to enter a negative value purchase, which I believe is how it is done elsewhere in Manager.

Is there a Manager way if entering this transaction I’m missing?

[Tut]

@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.

[Patch]

@Tut

Only if you posted the return to an income account would it show up as increasing your sales

No, and that is the problem.

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?

[Patch]

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:

A similar but reciprocal approach applies to Sales:

In contrast for cash purchases the following approach is taken:

A similar but reciprocal approach applies to cash Sales:

A solution is to treat cash sales / purchases in similar manner to how invoices are processed. So for cash purchases this would mean

A similar but reciprocal approach would apply to cash Sales:

The critical function illustrated are:

• 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.

[Tut]

@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?

[Patch]

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

Localisation variable	Amount
netSales[GST_10]	0
taxOnSales[GST_10]	0
totalSales[GST_10]	0
netPurchases[GST_10]	90.91
taxOnPurchases[GST_10]	9.09
totalPurchases[GST_10]	100
taxOnSalesMinusTaxOnPurchases[GST_10]	-9.09

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

Localisation variable	Amount
netSales[GST_10]	90.91
taxOnSales[GST_10]	9.09
totalSales[GST_10]	100
netPurchases[GST_10]	90.91
taxOnPurchases[GST_10]	9.09
totalPurchases[GST_10]	100
taxOnSalesMinusTaxOnPurchases[GST_10]	0

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.

[Tut]

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.

[Patch]

I agree my actual sales did not increase.

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.

[Patch]

Are other Manager users getting this error? Particularly Manager users who need to report gross sales to their tax authority.

To check

1. Calculate the Gross sales you will report to your tax authority using what ever method you normally do.

2. 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

3. 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).

4. 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.

[Tut]

@Patch

Are other Manager users getting this error?

To clarify, @Patch, are you referring to what you believe is an error in a report transformation or the P&L statement?

[Brucanna]

@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.

[Brucanna]

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.

[Patch]

@Tut

are you referring to what you believe is an error in a report transformation or the P&L statement?

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.

[Patch]

@Brucanna

Then when the customer pays their account, the GST received matches the nett of the GST Sales (Invoice - Credit Note)

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.

[Brucanna]

@Patch

was that really a Business sale (so increased my reportable sales)

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.

@Patch

This is different to invoice based transactions when the “Amount” is negative

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.

@Patch

Zero implements it by having separate tax codes for purchases and sales.

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.

[Patch]

Rubbish
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.

[Brucanna]

@Patch

Rubbish

Then I look forward to you providing official links in which you can support this assertion.

@Patch

The difference is Manager software creates an accounting error when recording goods returned without entering an invoice.

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.

[Patch]

Use case

• 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 type	Transaction Amount positive	Transaction Amount negative
Payment	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).
Receipt	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

1. 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.

2. 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.

3. 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.

Edit
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.

[Brucanna]

Firstly, it’s noted that your “use case” totally ignores the reporting of GST received from Balance Sheet transactions - which are an integral part of the GST system…

@Patch

Businesses who report Gross sales (for example Australia BAS item G1)

This is where you keep making the same repetitive mistake.
You don’t report “Gross Sales”, you report Total Sales as per the Worksheet item G1 title.
For GST purposes, Total sales equates to all transactions where GST has been received regardless if they relate to the balance sheet or the profit & loss (income or expense).

You repeatedly seem to be under the false illusion that somehow the Worksheet item G1 “Total Sales” must reconcile with Profit & Loss sales, whilst this may occur in the absence of balance sheet and refund transactions, it is not mandatory nor a tax department requirement that they reconcile.

If there is be any correction then the titles on the Tax Summary report need to be corrected:
For Sales they could be Net Revenue, Tax on Revenue and Total Tax Revenue.
So that GST revenue is seen separately and distinguishable different from GST sales.
Just as the reports reference to GST Purchases is completely different to Profit & Loss expenses.

It is noted that whilst you have a hang up on reconciling the sales side of the GST you don’t seem to have the same difficulty with the non-reconciling occurring on the opposing side of the worksheet - purchases. GST Purchases rarely equates to Profit & Loss expenses.

It also noted with extreme concern your “Short term solutions to avoid the bug”, especially point 2. To suggest that one should record their transactions in contradiction to the source document so as to generate a GST outcome brings in to question your suitability of being an accountant.

Lastly, you noted a user’s post as being “Rubbish”. To date, after being requested, you have failed to provide any formal support to justify your belittlement of that user’s post. That conduct is unacceptable on the forum.

[Patch]

Looking further, the underlying problem is when Manager does not have sufficient information to determine if a transaction is a sale or purchase, it takes a guess. As a result the totals for sales and purchases are guestimates not actual sales and purchases totals. The solution is for Manager to use guesses to enhance the user interface but always verify any program guesses prior to accepting financial data input.

In more detail

When entering transactions via an invoice, Manager can unambiguously determine if a transaction is a sale or purchase, as separate tabs are provided. It uses this information to process all line items in the transaction and maintain accurate sale and purchase totals for each tax code.

When entering a transaction via “Receipts & Payments” or a “Journal Entry” Manager does not have definitive information to identify if the transaction applies to a sale or purchase. The current design is for Manager to guess. The guess it make is for each line item

• Assume every credit entry is a sale so increases the sales totals (for that tax code)
• Assume every debit entry is a purchase so increases the purchase totals (for that tax code)

The corollary of these assumptions is it:

• Implies a negative value purchase adjustment is exactly the same as a positive value sale adjustment
• Implies a negative value sale adjustment is exactly the same as a positive value purchase adjustment

As a result in Reports → Tax codes, Tax Summary actually displays

Label	Mathematical content
Sales	(Line items in JE or R&P decreasing Purchase) + (Line items in JE or R&P increasing sales) + (actual Sales entered via invoices)
Purchases	(Line items in JE or R&P decreasing Sales) + (Line items in JE or R&P increasing Purchase) + (actual Purchase entered via invoices)
Tax liability	Actual tax liability

Some examples where Mangers guess results in false accounting records and reports

Goods returned, illustrated for a purchase but the same occurs with sales

Deposit required prior to work commencing with the balance on completions.

Special offer involving refund of cost of one of the items if a bulk purchase is made

Some financial adjustment such as exchange rate adjustments or credit card fees

Manager is an accounting program, reporting false accounting data is a serious bug.

Solution

The best way is to structure Managers user interface so when ever a tax code is entered, it can unambiguously be classified as a sale or purchase. On Receipts & Payments that could be done by allowing the user to specify if it is a sale or purchase as describe in the Why do the costs on a journal entry show in the net sales column? - #57 by Patch thread. The user interface changes for which maybe as simple as allowing the user to change between Sale/Purchase instead of Receipt/Payment after selecting they want to create a receipt or they want to create a payment.

Worse solutions

Only report the difference between purchase and sales. All users who are currently using the sales or purchase data separately would object however these are the same users currently reporting false data.

Remove the ability to use tax codes on journal entries as well as Receipts & Payments. This would result in a significant decrease in program functionality if permanent but is probably a good idea when Sale/Purchase status is unknown.

External correction of Managers accounting error

The incorrectly classified purchases line items (negative) can be found with the following custom report

The equivalent for incorrectly classified sales line items (negative) can be found with the following custom report (Replace “Payment” with “Receipt” and “Amount” with “Amount (sign reversed)”, & update report name

Which displays Managers purchase accounting error. In this test business it shows

Which can be manually subtracted from the sales and purchase data in the tax summary to correct the purchasing accounting errors (Note in this test case no real sales were entered).

Edit
The external correction solution described above works because:

• Managers core data entry error is, it does not know if a line item on its own pertains to a sale or purchase

• Manager users enter most Purchase transactions as “Payments” and most sales transactions are entered as “Receipts”

• If the Manager user reads the “Payment” / “Receipt” drop down to mean “Purchase” / “Sales” (typically the only thing a user would need to check is returns are entered showing a negative amount) then Manager does have a definitive way of identify every purchase and every sales line item. Hence the above custom report works.

• Manager could implement this internally simply by looking at the existing Receipt / Payment flag to deciding if a transactions a Sale or Purchase. Unfortunately the resultant correction of some old locked data would cause some users a problem. So fixing the problem requires something like this solution.