Sales tax makes me bananas! Sales tax with vendor bills

I just visited a client's office and that I found the most amazing detail that this bookkeeper had entered on her records.  Not only had she been calculating sales tax for her employer to pay to the state that they collected it for on items that they sold that were taxable, but she was also calculating it on any bills that they received from vendors and had entered into a sales tax expense account!  Yes, she had a sales tax expense account on her records.  I asked her why she tracked this and she told me it was to show how much money the company paid in sales tax.

So, I had to explain to her that when you pay the sales tax, that is just included in what the item cost to you.  For example, if you purchased bananas for your breakfast and they were taxable, then the bananas cost you the entire amount that you paid for them including the tax. If the bananas were $1.00 and you paid 7 cents in tax, then the bananas cost $1.07.  You do not need to break down the sales tax that you paid. 

I know that sometimes calculating sales tax and the set up of items for this can be a little tricky.  And you definitely want to be sure to prepare your sales tax return properly and accurately.  The sales tax module works wonderfully in QuickBooks when set up properly.   If you do not know how to do this, you need to hire and expert to get you going in the right direction.  

So, the moral of the story is you should never have a sales tax expense.  I will expand on proper sales tax setup in a follow-up posting.

Lynda

Check out my website www.artesanibookkeeping.com