How to account for TDS deducted on suppliers invoice.
How to make accounting entries once Tax is paid and needs to be entered in books of account
In case we have to Pay say 100 Bucks to a supplier, We deduct 10% as Tax deducted at source and pay them 90 Bucks. How do we close this entry of short pymnt of 10 Bucks.
Also when we pay this 10 Bucks to govt, for tax, how do we enter this in books
You can record TDS but Manager currently has no reports to break TDS by supplier.
First, create a liability account under your Chart of Accounts called TDS payable or something like that.
Then when paying supplier, use following trick:
You would still allocate $100 against supplier but since you are really paying only $90 because the difference ($10) is TDS. Allocate $10 to TDS payable account as minus $10.
This will result in your bank account being deducted by $90. Your supplier invoice being paid $100 and the difference ($10) will sit as a liability in TDS payable account.
When you pay tax authority TDS, simply allocate the payment against this account which will clear the liability balance in this account.
Hi,
I have customers who pays me after deducting TDS. So how do i handle this?
Pls advice,
I strongly believe that the withholding tax feature on sales invoices should be brought to purchases invoices. In every country where WT/TDS is made on sales, it applies to purchases too (It an asset to the seller and a liability to the buyer), therefore Sir it is important for the feature to appear on both purchases and sales invoices.
After the liability has been paid the buyer will collect a document from the tax man and send it to the seller.
I think late last year you told me to follow up on this after two months or so.
@lubos any update on the supplier TDS hold feature. Its a problem to use your trick above when using a journal entry to pay that invoice… Please introduce the feature ASAP
Although not directly related to your question, @madhu, you cannot record payments of purchase invoices with journal entries. That feature was moved exclusively to the Cash Accounts tab long ago. If you are still able to do that in your version of Manager, you are far, far out of date and should update your software.
@Tut I am sorry but I’m not an expert in accounting and may be I’m doing something wrong. I’m using the cloud version of manager and hence the question of outdated software doesn’t arise. I use a journal entry to record a loan and and use the loan to pay off invoices… Am I doing something wrong??
You can only make a payment from a cash account. When you received the loan, you should have used Receive Money, designating whatever cash account you placed the loan proceeds into. The account would have been the loan liability account you hopefully created. This is equivalent to:
Debit: Cash account
Credit: Loan liability account
If you don’t do this, Manager does not believe you have the actual money. When making a payment, use Spend Money from whatever cash account you are using as the source of the payback funds. Allocate to the loan liability account. This is equivalent to:
Debit: Loan liability account
Credit: Cash account
If you want to use the proceeds of the loan to pay off the purchase invoice from Pride Lubricants, you can only obtain the money from a cash account. So Spend Money from whichever cash account you parked the loan proceeds in and allocate the transaction to Accounts payable>Pride Lubricants>Invoice #. (Or, you can stop after selecting Pride Lubricants’ subaccount and Manager will allocate the payment to open purchase invoices from Pride Lubricants, oldest first.)
The journal entry in your screen shot is attempting to somehow magically pay off the Pride Lubricants invoice by adding 11,000 to the amount you owe Dr. Madhu. Obviously, that will not work. The loan and Accounts payable are both liability accounts. Neither records funds available to spend. In effect, you are simply transferring the account payable amount to the loan, increasing it despite the fact that you did not get more money from Dr. Madhu.
If you are new to accounting, I recommend spending some time at the free web site: http://www.accountingcoach.com.
@Tut. Thanks a ton. Ill sure make the changes and look up the website too