Manage cash basis taxes

The cash basis taxes are due when the payment has been done and not at the validation of the invoice (as it is the case with standard taxes). Reporting your income and expenses to the administration based on the cash basis method is legal in some countries and under some conditions.

Example : You sell a product in the 1st quarter of your fiscal year and receive the payment the 2nd quarter of your fiscal year. Based on the cash basis method, the tax you have to pay to the administration is due for the 2nd quarter.

How to configure cash basis taxes ?

You first have to activate the setting in Accounting ‣ Configuration ‣ Settings ‣ Allow Tax Cash Basis. You will be asked to define the Tax Cash Basis Journal.

Once this is done, you can configure your taxes in Accounting ‣ Configuration ‣ Taxes. At first set the proper transitional accounts to post taxes until you register the payment.

In the Advanced Options tab you will turn Tax Due to Based on Payment. You will then have to define the Tax Received account in which to post the tax amount when the payment is received and the Base Tax Received Account to post the base tax amount for an accurate tax report.

What is the impact of cash basis taxes in my accounting ?

Let’s take an example. You make a sale of $100 with a 15% cash basis tax. When you validate the customer invoice, the following entry is created in your accounting:

Customer Invoices Journal

Debit

Credit

Receivables $115

Temporary Tax Account $15

Income Account $100

A few days later, you receive the payment:

Bank Journal

Debit

Credit

Bank $115

Receivables $115

When you reconcile the invoice and the payment, this entry is generated:

Tax Cash Basis Journal

Debit

Credit

Temporary Tax Account $15

Tax Received Account $15

Income Account $100

Income Account $100

 Tip

The last two journal items are neutral but they are needed to insure correct tax reports in Legal Office with accurate base tax amounts. We advise to use a default revenue account. The balance of this account will then always be at zero.

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