Journal Entries on Tax Transactions Report

#1

Hello @lubos

I found a previous discussion related to the topic but i am starting a new topic anyway because a lot was discussed there which might cause confusion.

  1. So my question is why the Tax Transactions report do not include the Journal entries where Tax codes have been selected on line items?

My situation is that the purchase invoices i receive from suppliers have rounding applied to the tax figures as well. so to match their invoices i always include a line item for Rounding and enter the positive or negative figure. Since we need to file our tax returns every month and the fact that my suppliers will be filing their returns for these rounded tax values, I make a journal entry at the end of every month summarizing all the rounding adjustments for that month. I do select the tax codes and this shows the correct Tax Payable in my Summary page. now this tax payable shown is the difference of both credits and debits. but we have to file tax returns mentioning the sales and purchases separately. so for this the only option we have is the Tax Transactions report.

Since the journal entries are not included in this report the tax values are different (i am not saying incorrect) from what i have to file. It wastes a lot of productive time viewing hundreds of invoices every month and noting down the figures to calculate the liability for returns filing.

  1. Can an option be added for Tax Transactions Report where the user can opt Manager to report the rounded invoice values under the columns Total Sales and Total Purchases (which is the actual invoice value used to file tax returns)? I am sure most businesses use rounding for their invoices. It would be really helpful to see the same figures on the report and the invoices.
    It would be even better if an additional column was added to show the Taxable Value.
#2

Because journal entries are neither taxable sales nor taxable purchases.

This is the source of your problem, not the absence of journal entries in the Tax Transactions report. One of two situations may exist:

  • Tax law requires tax to be calculated and paid on unrounded figures. In this case, you should be charged the unrounded tax amount. If your suppliers are rounding down, they are effectively reducing the tax they are charging you, but you are also being deprived of the benefit of claiming that input tax. Your suppliers could be violating the law in this situation by charging you a rounded tax amount.
  • Tax law allows rounding of tax figures. In this case, the rounded tax figure is the correct amount to post to Tax payable.

Whichever situation applies, you should not be resolving it with journal entries. In the first situation, you should work with your suppliers to obtain correct sales invoices. You cannot expect Manager to compensate for their incorrect accounting practices.

In the second situation, you need to use a 100% custom tax code on a separate line item to account for the difference between the exact tax amount calculated with your normal VAT tax code and the tax amount charged by your supplier. See https://www.manager.io/guides/8901. This tax amount will post directly to Tax payable, so no journal transfers will be necessary.

#3

i understand that. then why do we have the option to select the Tax Payable account in journal entries if it cannot be reported to the user? correction entries irrespective of the accounts should have a proper reporting solution wherever such accounts are applicable.

Indian GST law allows for tax rounding.

i think this would be too much to ask a user from a country with a population of more than a billion. moreover for something they are allowed to do by law. an easier solution would be to add an option in Manager which would allow tax rounding and reporting the exact figures.

this is not a solution as using custom codes will need users to modify the theme to change the invoice title. moreover the invoice format allowed by law does not accept tax values entered as line items. also, there is not just one tax rate and this would become a mess when multiple items of different tax rates are included in a single invoice.

#4

@sharpdrivetek, you have mixed different things together to come to conclusions I did not suggest. I outlined two possible situations. You say Indian law allows for tax rounding. That’s the second situation. So my comments about the first do not apply. Only the final paragraph of my post applies.

You overlook the fact that you will also be applying the built-in tax code on the line item. That will trigger the title change. The custom code would be only for the tax rounding adjustment.

You said you are already entering a line for rounding. So what is the difference? That line represents something that was not purchased. A better way to handle that, I think, is to apply an exact amount discount, which is really what rounding is. Then you might not need a tax adjustment at all, regardless of how one might be entered.

#5

the problem with this method is that the Tax Summary report shows the custom tax code separately. this is not allowed by law. by making a journal entry i usually allocate the rounding difference to the actual tax code applicable in the purchase invoice.

also, when there are hundreds of invoices the Tax Transactions Report would be considerably long as the suggested tax code would add a line for each invoice. in case of a journal entry it would be just a single line.

our taxes are a bit complicated and so simple solutions are usually not practical for us. we have mainly four different tax categories for which we need the figures separately.

above is a screenshot from our returns filing website. as you can see knowing just a summary of tax payable is not enough for us. we have to be sure about the figures for each category.

in my suggestion the most simplest solution would be to allow a user to set tax rounding option under Settings in Manager and also report the rounded figures. this would help both users who need them and those who do not. i hope @lubos can understand the need.

#6

This happens because Manager simply ignores your selection of Tax Code on journal entry where your account is Tax payable.

I can see your intentions but Manager doesn’t support that. Mostly because I think tax transactions should be justified. I know your use-case is innocent but I prefer if there is another way.

You have mentioned, your suppliers have different calculation method for calculating tax, right? How does this calculation method work so it gives different figure than what Manager calculates?

#7

i am not saying the method of calculation in Manager is wrong. there is only a lack of tax rounding option and reporting the same.
most softwares available in the market rounds off the values irrespective of whether its subtotal or tax figures or total. whereas Manager rounds off only the total.
while i do not justify the behavior of softwares rounding off all values, it does help by allowing tax rounding on invoices which is acceptable as per law.

i would have asked for the same rounding method available in Sales Invoices but that would not solve our needs.

i can explain with an example.
considering an invoice has more than one tax codes applicable.
Tax Rate 1 = 532.30
Tax Rate 2 = 412.40
Tax Rate 3 = 656.80
Total = 1601.50

now the other softwares would round to nearest each tax value.
Tax Rate 1 = 532
Tax Rate 2 = 412
Tax Rate 3 = 658
Total = 1602
these would be the actual tax values filed by the supplier in their monthly returns which is the same figure we also would have to file in our returns. also, these tax rates need to be filed individually and not as a total.

when there are hundreds of invoices and each invoice has these many tax rates, it would be tiresome task to note down each tax figure in a spreadsheet and rounding off manually before filing the monthly returns.

@lubos it would be really helpful if there was a setting in Manager which would give the user the option to choose what figures need to be rounded off and also report these rounded figures in their respective reports.

#8

I think this will be solved when Manager supports custom currencies. Even though many currencies have officially 2 decimal places, due to inflation practically nobody is using decimals. Indian Rupees is probably a good example.

If your base currency has no decimal places, Manager would automatically round every entry across all transactions to zero decimal places. No need for obscure rounding checkboxes on individual transactions.

Would you agree?

#9

@lubos i am afraid that would not be as simple as it sounds. the rounding of currency is optional and not mandatory (in our country at least). so rounding off all transactions for a currency will not be practical.

not every business would round off the values. for example, banking services and most online services would not adopt rounding.

we cannot generalize this because rounding is transaction specific. so i do not think it would be practical to have a single setting to round off all values.

1 Like
#10

That makes sense. So this all comes down to implementing support for rounding amounts on selected transactions. This way you avoid need for journal entries directly adjusting VAT amounts.

#11

yes. but please make sure there is also an option for the user to report the rounded values wherever rounding has been used.
the reports at present, for example, the Tax Transactions Report show decimal values for invoice total even when the user has adopted rounding.

TIA

#12

Why such a report is required at all?

#13

i believe i had mentioned this in my earlier reply.

what we receive and what we issue are exactly what our suppliers/customers respectively are going to file in their tax returns. we are liable to match the figures exactly in our tax returns.

if the supplier has rounded off the tax values in their invoice, they will be filing their tax returns for the rounded figure. therefore, we would have to do the same.

similarly, if we have issued a rounded off sales invoice to our customer, they would file their tax returns for the rounded figure.
but the present reports in Manager show the figures in decimal which is NOT what we have to file in our tax returns.

Please note that I am not asking for any new separate report. Just the same reports which would automatically show the rounded figures instead of the decimal figures wherever rounding was applied in the transaction.

#14

@sharpdrivetek, you assume all tax authorities would regard rounded invoices the same way yours does. Actually, this is quite rare, if not unique. Most regard invoice rounding as the seller forgiving a portion of the receivable without changing the taxable price. The full tax amount is still due, even though the seller does not collect it from the buyer.

#15

i am not assuming anything. i guess my most recent reply got you confused. but in my previous replies i had mentioned giving the user the option to report the rounded values.

this can be made available either,

  1. by providing a check box for each report.
  2. providing an option under Settings.
  3. automatically based on currency selection.
#16

@sharpdrivetek what about cash-basis accounting? The tax figures will agree only if both supplier and customer are on the same basis but small businesses around the world are usually allowed to report on cash-basis. If there are unpaid or partially paid invoices, the figures supplier reports and customer reports for the same period won’t match.

#17

@lubos i can answer this question only based on the laws in our country.

For small businesses there is an exemption limit from payment of goods and services tax based on the annual turnover. such businesses do not have to register themselves and also are exempt from filing monthly tax returns. unregistered businesses cannot claim input tax credit. so these businesses can follow any accounting method.

For registered businesses, the tax should be paid based on the time of supply of goods as per the GST act. Once the bill is raised the liability of payment arises. Due to this the only option is to follow accrual basis of accounting.

Also, if a registered business makes a purchase from an unregistered business, then the registered business is liable to pay the tax on reverse charged basis. Also, there is no provision to claim the same as input credit. Due to this reason, most registered business would not make purchases from an unregistered business. so there is no question of whether the tax figures agree. :slightly_smiling_face:

#18

@sharpdrivetek - if we stay with your main pretention without being distracted by Indian tax law:

“So my question is why the Tax Transactions report do not include the Journal entries where Tax codes have been selected on line items?”

The answer is this - the Tax Transaction report does show Journal Entry tax coded line items.

Let me provide this illustration of a purchase invoice which is subsequently adjusted by a Journal:
The purchase invoice for a business usage in edit mode:

The purchase invoice on the tax transaction report:

The purchase is subsequently used for both business and private usage so a Journal adjusts:

The Journal Entry on the tax transaction report:

Or if you combine the tax transaction reports then both the purchase invoice and journal appear:

Now the things to note - if the adjustment is a Journal credit, then it will appear under Sales and you don’t get a notation saying Journal on the report, just its date.

The recording of rounded tax values on the purchase invoice without needing a separate line item is a completely separate issue which the topic unfortunately got distracted into.

But they can be used for post transaction “taxable” adjustments as illustrated above and as also illustrated in the Guide, albeit with a poorly crafted example.

Well it doesn’t, but perhaps you were thinking of a different situation to the above illustration…