QuickBooks Sales Tax Entries - Client Pain Point
Posted by Mariann Goff on Tue, Oct 26, 2010
Greater than expected sales always make business owners happy—until it’s time to pay sales tax. That’s a client pain point.
When a client doesn’t know how to record sales tax collected and sales tax paid in QuickBooks revenue may be overstated and/or tax expense may be overstated. This results in financial reports that don’t accurately reflect income, expenses or liabilities. That’s a client pain point.
When visiting a client for the first time I always review the balance sheet. Companies that collect sales tax have a sales tax liability account—or they should. Sale tax liability with a negative balance is a red flag. If taxes paid are posted to the liability account but taxes collected have not been posted to the same liability account, the result is a negative balance. Where can the taxes collected be? Often they are included in the revenue account. Ouch! Sales tax collected is not revenue.
An unusually high balance in the sales tax liability account is also a red flag. If sales tax payments are not offsetting the liability account, where can they be? Often they are processed as a tax expense. Sales tax collected is never an expense.
Getting sales tax processing right begins with activating sales tax in QuickBooks then correctly setting the sales tax preferences. For detailed information on how to process sales tax click “Help” on the QuickBooks menu bar and search “sales tax”.