Should I create a purchase invoice for the Customs tax bill? If I do so, then I would have to create a payment when I paid the taxes, but that creates me a double charge for the payable taxes account in the debit column.
@wmartinez, you can create purchase invoice, with the customs authority as the supplier, if you want. Then enter a payment. If you do that, the purchase invoice is the equivalent of:
Debit - Tax payable
Credit - Accounts payable > Customs authority
In other words, it would reduce the amount in your Tax payable account by transferring the liability to Accounts payable. Then, the payment is the equivalent of:
Debit - Accounts payable > Customs authority
Credit - Bank account
Or, you could bypass the purchase invoice and just enter a payment of the customs tax bill, equivalent to:
Debit - Tax payable
Credit - Bank account
Notice that, either way, there is only one debit to Tax payable. If you use the purchase invoice and payment route, the payment gets no tax code; only the purchase invoice does. If you use the direct payment route, the tax code is applied there. Whichever way you do it, you will be using a 100% tax code, so the entire line item on which you enter the customs tax bill will be tax.
@wmartinez, please be cautioned that the above response contains factual errors based on your facts.
(1) You wrote: “I have to pay 15% over the CIF amount as a customs tax [duty], which goes to the cost of the goods”. Therefore this amount (1,500.00) is debited over the related Inventory Items via Freight-in. It does NOT get debited to Tax Payable.
(2) You wrote: “then custom authorities charge me another 15% as a sales tax paid in advance”. Therefore this amount (1,725.00) is debited to Tax Payable, and will offset against future Sales Invoice’s Sales Tax.
Noting that with (2), if choosing the Purchase Invoice option then you can’t select the in-built Tax Payable account - as implied above, therefore you will need to create an alternate account - see example - then transfer via Journal.
Furthermore, neither (1) or (2) requires the use of a 100% or any other tax code as NO TAX is being levied upon the customs charge or the advance payment.
Your account allocation would be like this for the Purchase Invoice option.
Or this for the direct Payment option
The first point about treating the 15% like freight-in is correct. But I was not addressing this aspect of your situation. You seemed to understand that and have everything in hand, as indicated by the concern you expressed over the “payable taxes account.” Since a freight-in type charge does not involve the Tax payable account, and you seemed worried only about that account, I skipped over the part of your scenario that can be handled as freight-in.
The second point, in which it is claimed that you cannot select the in-built Tax payable account is not correct. As I wrote, you will be using a 100% tax code for that line item in your transaction. When you define a custom 100% tax code, the default posting account is Tax payable. There is no need to use another, although you can define a different account if you want. I used the default account in my illustration.
Also note that @Brucanna did not address how to clear the customs duty from the clearing account. That was just left hanging there.
And the statement that no tax is being levied on the customs charge is irrelevant. The customs charge is tax—all of it. That is why you need a 100% tax code. In fact, that is the entire reason the 100% custom tax code feature exists in Manager. And it completely avoids the need for clearing accounts.
Thanks a lot @Brucanna, I will try this and I will come back shortly, because now I am working on it
Yes @Tut I understood what you told me, and actually, I tried the payment method only and it seems to work correctly, but that is just for the Sales Tax paid in advance, now I am getting my hands on this again, and I will try for the tax that affects the cost of the goods, as well as the freight costs. I’ll come back to you guys in a few moments. Wow, I really thank you both of you @Tut and @Brucanna , I was afraid of not getting this thing together, but your guidance is of ultimate importance to me, I really appreciate it.
In the account dropdown box, you CANNOT SELECT the in-built Tax Payable account.
You can associate the Tax Payable account to a line item if you select a tax code, but only if that tax code is relevant to the line item, which in this case the tax code is irrelevant.
Furthermore your own illustrated example implies that the Tax Payable is directly selectable:
Debit - Tax payable
Credit - Accounts payable
No you wont.
Please re-read the posters clear information - “sales tax paid in advance” or (GST paid in advance). It is not Sales (GST) Tax per se, it is an advance payment of that tax which hasn’t yet been collected from customers.
Or put it this way, lets assume that the tax authority HADN"T requested that advance payment. Then as the Sales Invoices were issued the Sales Tax charged would accumulate in the Tax Payable account and at the end of the period the balance is 1,725.00.
Now in satisfying that liability to the tax authority they make a payment of 1,725.00.
So the question is, does a tax code ever get allocated to a payment that is discharging a liability.
And the answer is - NO.
Under the advance payment scenario, the account balance at the end of the period would be zero - nothing owing. Therefore the advance payment has only transferred the potential liability to the start of the period.
The tax authority is requesting an advance payment against a future tax liability, they are not charging the user the tax itself, therefore no tax code is required.
In my defence I will rely upon your assertions which you seem happy to justify yourself:
(a) I was not addressing this aspect of your situation.
(b) You seemed to understand that and have everything in hand
© I skipped over the part of your scenario that can be handled as freight-in
However if a fully worked example is required I am more then happy to provide it, but it will only be a modification of the already fully worked example in the topic I linked to.
Now we have the great contradiction - confusing charges v’s taxes:
(A) The first point about treating the 15% like freight-in is correct.
(B) Since a freight-in type charge does not involve the Tax payable account
© The customs charge is tax—all of it. That is why you need a 100% tax code
How can you claim that the freight-in charge does not involve the tax payable account whilst also claiming that the exact same item requires a 100% tax code which ensures that it goes totally to Tax Payable.
You CAN’T have the one transaction item being debited to both freight-in and Tax Payable:
Note how there is no longer an amount to distribute as Freight-in.
The custom charge is a cost of importation, NOT a tax, albeit it being referred to as one.
Anyhow, I look forward to your conclusive illustrated proof of the custom charge being both a freight-in and a 100% tax within the one transaction without the usual confusing verbiage.
Okay, so far I am trying to follow the freight-in method for cost allocation since it will be useful for shipping cost as well not just duties, according to the Manager guide, when there are a lot of inventory items in the purchase invoice, it is better to put the freight-in as an item at the end of the purchase invoice and select the inventory on hand account, but in order to have the freight-in as an item, I understand I should have created it first as an item.
Ok @Brucanna I missed the “freight-in” as an item because I am working in another language, so I was skipping it, now I found it, and it works perfectly fine as Manager suggest. How can I treat the duties as freight-in charges when duties are in other currency than dollar, while the supplier’s invoice is in dollars? When I try to put freight-in as an item in the supplier’s invoice the currency for that item will be USD.
Read this extract from the linked topic - I have edited it to suit your comments
The balance on the Importation Clearing account should now represent the total of the shipping line invoice plus Custom duties in the other currency. Now convert that balance (manually) to USD using the same exchange rate as used for the Suppliers Invoice. Now add two lines (as circled in red) to the Suppliers Invoice - on the first line select Freight-In under item and put the USD value under unit price (qty should be blank) - on the second line select Importation Clearing and enter the same value but as a negative - the total value of the Suppliers invoice remains unchanged.