The Rounding of Invoices are recorded under expenses in the P/L as a negative of the expense. In other words as far as I understand it, it is like money received under expenses. Should this not be cleared in some way otherwise it is just going to accumulate. How would I do such clearing? Obviously it has to be done by Journal, but which accounts will be affected.
When you begin a new accounting period, rounding amounts (they can be credits or debits, depending on which rounding approach you choose and what your specific amounts happen to be) will no longer show. This is just like any other income or expense item: they do not show in the new accounting period. But they remain as real adjustments to income or expenses for the period in which they occur.
i use the rounding to nearest option for all invoices and as i had discussed in another topic we pay taxes for the rounded value.
so my outstanding Tax liability shown for a month or year is always equal to the value under Rounding expense. i would like to clear my tax liability with a journal entry by crediting Rounding expense and debiting Tax liability at the end of every month or every financial year.
an example below.
now as far as the tax authorities are concerned my tax liability is zero because the law allows to round the taxes. so i do not want the tax liability to keep accumulating.
but as you are aware we cannot select the Rounding expense account for a journal entry. what are your suggestions?
Use any other account that is applicable, for myself I use the Bank Charges & Other Fees account.
Also, you don’t need to do a separate Journal, make the adjustment when you pay the tax authority. Say the Tax Payable account balance is 3451.40.
Line one - Tax Payable 3451.40
Line two - Other Fees -1.40
Payment total - 3450.00
It just stays there, it wont show a wrong P&L as the transactions that created it did occur, it’s just that the contra can’t be matched against it. If the balance of the contra account increases or decreases depends upon it being an income or expense account.
If you wont to be pedantic about it “even though its negligible”, design the chart of accounts to suit.
Because it’s a system control account, similar to Depreciation etc
since all my product quantity sold and their rates are whole numbers, the fractions are a result of only the tax.
so i just made an account under Income for Tax Rounding and made a journal to it debiting the Tax payable. the tax liability balance shown because of rounding invoices is actually an income as it is like a tax credit we do not have to pay. now the P&L is also balanced because the Tax rounding under income acts as a contra to Rounding expense.