When I write off inventory, depending on the reason I need to also deduct the tax I paid from the Tax Payable account.
Example:
I buy an item for $100 with 12% tax, Inventory on Hand increases by $100 and tax payable decreases by $12.
Writing off the inventory decreases the Inventory on Hand account and increases the account I have written it off to, but the Tax Payable remains the same.
In some cases when I write this item off, the tax should also be charged to the account I am writing the item off to. So the Tax Payable should increase by $12, and the account I am writing off to should be charged $112 not $100.
This sounds definitely wrong no matter what country we are talking about.
What you are implying is that your tax authority is charging you 12% tax for writing-off inventory items. That’s definitely not the case and that’s why writing-off inventory items has no affect on your tax payable.
One of the examples I was given was personal purchases from the company, I saw the other posts about writing off the inventory to a loan account / owners equity, but according to my accountant the tax must also be charged to this account. There were a couple other examples but this is probably the most obvious one.
That was an awesome response time, however I tried it out and it seems to be doing the opposite of what I need. It is subtracting the tax from the total write off rather then adding it.
Doing it this way actually duplicated the tax write offs for that inventory item.
Eg.
I purchase an item at $10 and 5% tax, tax payable is now $0.50 less, inventory on hand is $10.00 more, makes sense. If i then write this item off and choose tax, instead of charging $10.50 (taking $10 from inventory on hand and adding $0.50 to tax payable) to the account I chose for the write off, it charges $9.50 to that account and lowers the tax again by $0.50, inventory on hand is adjusted correctly.
Now the tax payable account is incremented twice for the same item, once when I purchased it and again when I wrote it off. The correct result should be the tax payable going to the balance it was before the purchase of that item.
Sorry if I’m not making sense, I really do appreciate you taking the time to look into this for me.
Also, I’m not sure how it’s calculating the tax on that item but it doesn’t seem right. The item at cost is $15.02, the tax rates are 5% and 7%, 5% should be $0.75 and 7% should be $1.05 should it not?
The tax rates still confuse me though, how exactly are they calculated?
By my calculations the tax amount should be $1.80 not $1.25. Am I missing something?
Perfect, I just tested a few different items and it’s working perfectly. I was actually just about to post to give you a little more information. It seems as i decreased the tax percentage, the amount added to tax payable increased, lol.
Thank you so much for your help, this will save me a ton of time this year.
Update:
After an update to a recent version, all inventory write offs have been removed from tax payable. They have also been removed from the account I was charging the write offs to.
Creating a new write off also ignores the selected tax code. The item is written off, but the tax is unaccounted for.
