DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Problem with calculating tax amount


#1

Hi, The software is not calculating the Tax amount right. I made journal entry of 100000 with tax of 10%. The final result according to software is 90,909.91/- Instead of 90,000/- Same with calculating Service Tax (India) 12.36%.
Please help me if I,am wrong or do the needful correction.

Thanks

M K Sundaram


#2

This is common misconception because 10% tax on tax inclusive amount of 1,000,000 is actually 90,909.09.

When entering journal entries, remember that all amounts are to be entered as tax inclusive.

Have a look at Wikipedia which explains this further.


#3

Hi, Thanks for the reply. Please let me know how do I Calculate the TDS to be paid by me ?


#4

I noticed that the tax calculation is not correct on invoices.
Example: Invoice subtotal is 20,38 * Tax 23% = 4,69 (4,6874). Manager shows 4,68 instead.


#5

How many line items do you have on that invoice? Only one?


#6

Two lines,

Line Value 1= 8.75
Line Value 2 = 11.63


#7

For accounting purposes, tax is being calculated on each line item separately. As far as I know, this is common practice in every double-entry accounting system.

8.75 * Tax 23% ~= 2.01
11.63 * Tax 23% ~= 2.67

2.01 + 2.67 = 4.68

#8

I understand,

but with bigger invoice i.e. with 10 lines or more, the difference is 0.09 euro. I reproduce this invoice with another commercial accounting program and calculates the tax correctly.

Anyway, thanks a lot!


#9

Just out of curiosity, which one is it? I’m not saying it’s not possible to calculate tax amount on total invoice amount but then are implications on general ledger level and I wonder how they are dealing with it. (not that there are no solutions but they seem to be hacky)

Also, in regards to this problem, both ways of calculation are generally accepted methods. For example Amazon online store is also calculating tax amounts as per each line item.

If an item is subject to sales tax in the state to which the order is shipped, tax is generally calculated on the total selling price of each individual item.


#10

The program my employer uses is a Greek accounting program (for Greeks only). But I did the same test with the Adminsoft freeware version and the result was correct -> 4.69.

Then, I tried the MoneyWorks Gold and the result was 4.68.

Any way, if I didn’t had two programs to compare, I never would not have realized that.