VAT calculation on sales invoices

[wegeberg]

I’ve found a lot of topics in the forum about VAT rounding, but none that helps me with this problem.

A lot of times when creating sales invoices I get the wrong VAT total on the invoice. This is due to the fact that Manager rounds the VAT on single lines to two digits.
The problem would be solved if VAT on the line items didn’t occur at all.
Then do the two-digit rounding on the total for each VAT-code.

The attached example illustrates this.

As it is now the two VAT amounts of 39.375 and 275.625 are rounded to 39.38 and 275.63 respectively. Resulting in a VAT total of 315.01
If the non-rounded VAT-values for the two lines where added, and the total VAT was then rounded to two digits, the result would be correct: 315.

So, as a feature request I propose that no VAT-rounding takes place on line level.

[lubos]

All general-purpose double-entry accounting systems calculate tax amounts on line item level. You can’t make general-purpose double-entry accounting system which will not round tax amounts on line item level.

Why is it a problem? I don’t understand.

It looks like you care about this issue because you want your total to come to exactly to 1,575.00. In that case, you should be issuing invoices where amounts are already “tax inclusive”. Then Manager will calculate tax amounts backwards without affecting your desired total.

Create sales invoice with tax-inclusive amounts

If you charge tax, by default unit prices on sales invoices are treated as tax exclusive. You can make unit prices tax-inclusive when creating or editing invoices. [image] Tax exclusive means, when line items on the invoice are subject to tax, the tax will be added to the tax-exclusive total. For example, let's say we charge a customer 1,000 with 10% tax. [image] Since the amount of 1,000 is tax exclusive, when you create the invoice, 10% tax will be added to the 1,000, increasing the …

[Jon]

You can’t make general-purpose double-entry accounting system which will not round tax amounts on line item level.

Well, you can, if you calculate the rounding error for each invoice and charge it against a Rounding account that gets written off periodically.

[lubos]

Let’s say you have an invoice with two line items. Each line item is to be posted to different account.

Amounts on line items are tax-inclusive which means you need to calculate tax amount on each line so you know net amount which is to be posted to some income account. You need to round tax amount to two decimal places so the amount posted to income account is also no longer than two decimal places.

Otherwise you could end up with trial balance which simply doesn’t balance (even if it’s by 1 cent) or trial balance would need to show more than 2 decimals which would be even worse. Or yeah, have some strange rounding account where this 1 cent or whatever could be posted to.

Nah, rather calculate and round tax amounts on line item level to avoid this mess. Every general-purpose double-entry accounting system is doing it on line item level after all. And that’s the way to go.

[Somsi_Somchai]

Unbelievable!
How do you even sell this faulty system to people? Have the tax office even checked this system?

We were looking to purchase an invoicing system (or use a cloud based one!) when we found manager.io!
after adding just one VAT invoice we realized the whole vat calculation is wrong on a very basic level!

For an item which costs 19.21euros [dollors it does not really matter in this test case] where vat is 14% the net amount should be 16.85 and tax/vat amount must be 2.36.
But your system is calculating it wrong!

The vat inclusive price is simply calculated as
|Total |19.21|
|Less: Withholding tax 14% |2.69|
|Balance due |16.52|

How on earth are you calculating the vat?

[Joe91]

Please read the guide Choose between tax-exclusive and tax-inclusive prices

[ries]

Do you really think Manager does wrong calculations by default???
The way you inform us about your problem is not the way we “talk” to each other in this forum.
First ask, get an answer and then jump to conclusions. Not the other way round.
I have made the calculations based on your figures. Manager does it’s work just fine.
Can you show us a print screen based on your problem.

[Brucanna]

How on earth are you calculating the vat?

The correct way, not your mistaken/misunderstood way.
VAT is an add on tax (cost to the customer + tax), not a deduct off tax as your example wrongly assumes.
Take an item that is 100.00 + 10% VAT (or 1/10) which equals 110.00.
Now if you start with the tax inclusive amount then you deduct 1/11th > 110 / 11 = 10.00.

If you had searched the forum first you would have seen this question explained umpteen times.
But coming on to the forum and blasting it with your ignorance reminds one of this adage.
" It better to say nothing and be thought a fool, then to say something and remove all doubt. "

[Davide]

Dear @Somsi_Somchai,

First of all… compliments for very polite post.

Secondly you should better learn how VAT works, since what you write is completely nonsense.