you are right - this is how is done in the manager however in my country they calculate the VAT on the total of the invoice
is there a way around to this?
after all the vat is not shown in every line of the invoice…
Not that I am aware of, except individual invoices per item which probably isn’t practical.
The majority of countries do it as Manager does it for the following reason:
If you invoice 10 items on individual invoices - their VAT adds up to xx.xx
Therefore if you invoice the 10 items on a single invoice - the VAT should still add up to xx.xx
If you use the Invoice total then the VAT could calculate to xx.xy
Another reason taxes are calculated on individual line items is that the same invoice could include items taxable at different rates or excluded from tax entirely. A calculation based on the total could not accommodate this.
Likewise, if a single line item on a sales invoice with many line items is returned, only the tax from the returned item is calculated and rebated.
In most tax jurisdictions, there are explicit regulations permitting line by line calculation, and sometimes requiring it. This is the way virtually all modern accounting software works.
@compuit, you just happen—on your example invoice—to have 3 of 4 line items for which the tax rounds up and 1 on which it rounds down. Would the customer have insisted on your matching their antiquated calculation method (calculating tax on the subtotal instead of each line item) if your invoice happened to round 3 of 4 down and charged one less cent than their calculation? Probably so, because many companies habitually look for any excuse to delay paying their obligations.
But you cannot just insert an arbitrary tax adjustment. If the program allowed that, users could put in any bogus number they wanted.
Total invoice rule – under this rule, the unrounded amounts of GST for each taxable sale should be totalled and then rounded to the nearest cent (rounding 0.5 cents upwards).
Taxable supply rule – under this rule, you need to work out the amount of GST for each individual taxable sale. Where the unrounded amount of GST has more decimal places than your accounting system can record, the amount should be rounded up or down as appropriate. You then need to add the individual amounts and round this total to the nearest cent (rounding 0.5 cents upwards).
You and your customers don’t need to use the same rounding rules.
Managers compliance requires interpreting “more decimal places than your accounting system can record” as Managers ability to record line item GST only to the minimum legal tender, and as a result the final rounding at the invoice level always produces no change.
Importantly for your negotiations with your supplier is the last paragraph “You and your customers don’t need to use the same rounding rules.” providing both comply with the tax offices rules.
Guys just so I understand what is going on here. I understand that GST in Manager is calculated on a line by line basis and then summed, correct?
So using the example above I manually calculated the GST on Total and Line by and then summed to give the GST inclusive total.
Am I totally messed up here because processing both ways I get the same result but Manager calculates slightly different? How does Manager sneak in the extra cent to give $809.98? Look at the rounding it is already rounding up.
OK here is a bit more… rounding at each line then summing
If you invoice 10 items on “individual” invoices - their tax adds up to xx.xx
Therefore if you invoice the 10 items on a “single” invoice - the Tax should still be xx.xx
If you use the Invoice total then the Tax could calculate to xx.xy
@compuit I find it easier to work with tax inclusive numbers that way rounding errors change the distribution between tax and not tax but not the line item total value. Doing it that way decreases reconciliation errors.
I guess the solution is the same as what i have been doing for the past invoices with the same problem, enter all items without TAX, and add a line entry using the GL account “Tax Payable” under Liabilities with the total TAX value, in this case 52.932.
Is this a good workaround? or there is a better solution to make it work???
You are never going to get Manager to match this particular invoice, because either:
Your supplier’s arithmetic is incorrect, or
The supplier’s presentation method does not match the calculation method.
The total of VAT amounts for individual line items on the supplier’s invoice should be 52.933, exactly as Manager calculates it with any of your methods. The total amount of the invoice should be 1111.573, again exactly as Manager calculates.
The invoice makes it look like VAT was calculated on each line and summed. But your supplier appears to have actually calculated VAT on the total tax-exclusive amount, which yields 52.932. Most automated accounting systems calculate tax on individual line items and add those amounts. This is necessary because individual line items might later be returned or adjusted. Or they might be subject to different tax rates. The method your supplier appears to have used is what most old-fashioned, manual calculation systems used. The rounding difference between the two methods is only one fil.
Check your local tax regulations. You will discover either method is acceptable. Over time, such small differences are likely to average out, with some suppliers doing things one way and one the other, and with some differences adding to and some subtracting from your tax liability account. Your tax authority will be aware of the two methods.
If you really want to make the invoice match, you will have to create a 100% custom tax code and add a line item to the purchase invoice for the 1 fil adjustment.
You would give up the ability to track taxable transactions.
You would compromise your ability to enter debit notes if you return a single line item to a supplier.
Various built-in tax reports will not work correctly.
You will seriously confuse any auditor or inspector who examines your records.
You would lose the ability to enter tax-inclusive purchase invoices, which some of your suppliers might furnish.
While this will not impact purchase invoices, if you took the same approach on sales invoices, you would be breaking your jurisdiction’s tax laws, which require line by line indication of tax codes applied. But your purchase invoices will not match your suppliers’ tax invoices (sales invoices), making it very difficult to resolve any future disputes.
Is your tax authority going to be concerned about a extremely small difference?
If they are then you need to do as Tut suggested.
.Or you could make the tax match the suppliers invoice and then use a rounding account in your P&L to make the invoice total match by adding another line in the invoice. This will avoid having to create a new tax code.