How do I categorize a 2018 sales tax entry in QuickBooks Online?

[William-01]

I'm manually entering transactions as far back as January 2018. I need to categorize a sales tax payment.

The sales tax payment was paid in January 2018, so I'm just trying to categorize  liability payment properly and reconcile.

So, I'm trying to think this through before actually doing the entry. 

My question is:  Would I need to make a journal entry and credit the sales tax liability account and debit the checking account to properly match the transaction?

[sjrcpa · Accepted solution]

You would debit the sales tax liabilty and credit the checking account.

[William-01]

Thank you!  

[qbteachmt]

First, it's important to point out you are not asking the QB Community. They are at this other link:

https://quickbooks.intuit.com/community

Next, it matters how you entered Sales.

"Would I need to make a journal entry and credit the sales tax liability account and debit the checking account to properly match the transaction?"

We assume you are asking about the client making their retail collections payment out to the taxing authority, after selling to customers.

Sales is:

Debit Bank

Credit income

Credit Sales Tax Liability

Or, using Sales Receipt, in QB, with taxable status set correctly.

If using QB for this, the Sales Tax Function takes care of everything; you never use JE or regular banking for making the entry for sales tax liability.

But, if you are manually posting Income and Liability, then the banking is a Deposit with the Splits: income and sales tax liability. The Check Expense entry has that same Liability account for the payout of sales taxes and a check is a Debit to the target account (Sales Tax Liability) and a Credit for the source (checking).

If you are doing this for a client, working in their QB file, never use JE in the same account as their own Sales Tax Liability would be managed by the program. Any method you are using other than the provided function will be orphaning the sales tax reporting and tracking that the program wants to do for them. Don't make their ability to manage their data worse. Use your own Liability account for your manual method for clearing, in other words.

If you are simply working off of the bank statement, you don't have any info as to liability owe and paid from any prior period, and no info for separation of the deposit income from the deposited sales tax collections. That means you might be putting all deposits to income and the sales tax payment would be expense; it's not really right, but you have to manage with the data you have.

[William-01]

@qbteachmt - Thank you for the additional detail and link to QB Community. I am working off a bank statement and the client made a sales tax liability payment.

I realize QBO takes care of the sales tax, but as you mentioned, I am trying to categorize the payment correctly. Based on your last paragraph, it sounds like because of the limited data I have to work with, I must categorize the sales tax payment as an expense.

That makes sense to me because I have no previous data to confirm the accuracy of the liability.

However, as soon as the accounting is current, then I can properly track sales tax liability and the payment using QB sales tax tool and trust the data is correct.

[qbteachmt]

"However, as soon as the accounting is current, then I can properly track sales tax liability and the payment using QB sales tax tool and trust the data is correct."

Get a copy of their Sales Tax filings for that same timeframe. Now you can see what they reported for Sales, taxable and nontaxable gross, and what they reported they accumulated as owed for sales taxes.

Remember that Banking is not giving the whole picture: spending doesn't equal expense. Expenditures from bank include loan debt balance payment amounts, investment in new assets, owner draws or shareholder distributions, and other uses of funds that are not considered expense, including sales tax and payroll tax liability. The same is true of deposits: inflow does not equal income. Inflow and outflow are processed. Expense, Sales, Income, Equity, borrowing, etc are the activities or why the money is flowing.

[William-01]

Thank you! I'll see if the client has additional information. It can be hard sometimes when new business owners are not familiar with what information to provide to make sure their data is accurate.