When you apply a discount based on the terms codes in A/P & A/R it messes up the tax amounts. Well it does in NZ anyway so can only imagine that it will do it for everybody else as well.
If you have an Invoice for $100 plus tax at 15% then your document total is $115.
So the accounting entries off this are CR Revenue 100, CR Tax 15, DR Debtors 115
If you have a prompt payment discount of 10% then you get the following accounting entry upon receipt.
DR Debtors 115
DR Payment Discount 11.50
CR Debtors 11.50
CR Bank 103.50
However from a Tax Reporting basis you are reporting tax on sales of 115, when you actually have sales of 103.50 so you have overstated tax by 1.725. You get the same issue in A/P
The entries should be the following
CR Debtors 115
DR Payment Discount 9.77
DR Tax 1.73
CR Debtors 11.50
DR Bank 103.50
The Tax Services reporting should also reflect this.
by: Kerry J. | over a year ago | Financial Management
Comments
There are regional variations on this and I'm not sure you have your figures right anyway.
In the UK this is allowed for by reducing the tax on the invoice. So the invoice would be $100 plus $13.50 tax (15% of $90.00).
All this goes to demonstrate that localisation off the shelf can be a complex.
The claw back of tax on settlement discounts is a key missing feature in Sage Accpac (and always has been)....
We have clients who deal with major department stores who insist on settlement discounts, and the discounts can be in the 10's and 100's of thousands, 10 % of which can be large values.
Settlement discounts should
1. Claw back the tax (GST in Australia)
2. Report these in the tax tracking report
Must have! keying in invoices and credit notes to fix a shortcoming is waste of time.
This is important - a real pain for those using discounts.
Idea has been here a long time.
The date of this comment is 13 August 2014 - as I know the Idea forum doesn't show dates (the age of most is too embarrassing for Sage)