Hi… I just wanted to know how should I adjust the tax amount which has already been deducted by the client. for example I made and invoice of $ 100 and applied 7.5% on it. that made the total of invoice $ 107.5. now the amount I received from client is $ 100 after deduction of tax.
So how should I adjust remaining $7.5 when I receive money on the invoice.
Please help.
If you are charging 100 + 7.5%, so 107.50 - why aren’t you being paid 107.50 ?
If you are not going to be paid the 7.5%, why charge it ?
What account does the 7.5% get allocated to ?
Normally you would put the unpaid 7.5% back against the account which it was originally allocated to - but one needs to better understand the situation before backing a delimitative comment.
Thank Brucanna for your reply. Actually here in Pakistan clients deduct the tax amount and submit to the tax dept their selves. So we mention the tax amount as in this example 107.5 inclusive of 7.5% tax but we are paid 100. so when we receive $100 on the invoice we get a balance amount of 7.5 which has to be adjusted in some other account.
The problem, @imms, is that from your perspective, the 7.5% is not a financial transaction at all. You do not collect it. You do not pay it. You do not owe it to anyone. And no one owes it to you. If you select any tax code as being applicable to a line item on a sales invoice, that amount will end up somewhere in your accounts, which it should not. So the best you can do is add a note for the convenience of your customer telling them what the taxable amount is they must pay.
In that case, on invoicing the client - 100.00 goes to the income account and 7.50 goes to the tax payable account so the invoice total is 107.50. When you receive the 100.00 - allocate 107.50 to the invoice so it shows as paid, then add a line and the Account = Tax Payable and the amount is -7.50 (note the minus)
Thanks Brucanna, this seems to be a proper solution. Thanks a lot.
