There’s been talk, a lot of talk, regarding QBO and sales taxes. The gist of that talk, of course, is about the inability to mix journal entries and sales tax accounts.
The fail is known by most of us. To recap, it goes like this. Debit or credit a sales tax account and, yes of course, QBO will update the general ledger. However, what QBO won’t do is capture that amount in the sales tax reports. And it won’t reflect it in the File Sales Tax routine either. Which means you’ll end up overpaying or—perhaps even worse—underpaying the sales taxes owed to CRA or other government agency.
This is not a good thing. And we all therefore go out of our way to avoid mixing jounral entries and sales tax accounts.
But did you know you can use a journal entry for sales tax accounts? And did you know that it actually works? What I mean is that, not only will QBO update the GL but the sales tax reports as well?
All it takes is a little workaround, and a clearing account. Here, let me show how to do it.
Let’s say you want to record a $50.00 GST credit. And let’s say you also want to debit a revenue account for the same amount.
The first step involves grossing up the sales tax amount. All you need to do is figure out the grossed up amount of the aforementioned $50.00. In other words, assuming that the $50.00 reflects GST, then you have divide that fifty bucks by five percent. Which gives you a grossed up amount of $1,000. And that, right there, is the hardest part. You’re now ready to record your journal entry. Don’t forget, though, that you also need that clearing account I mentioned earlier.
OK? Alright then, let’s record the journal entry
Now, debit $1,000 to that same clearing account. What you end up with, of course, is a wash. In other words, those two clearing account entries cancel each other out. Which means your final step is to debit $50.00 to your desired revenue account and, voila! Job done.
Using this method will mean that your GL and sales tax reports are always in balance. If you don’t believe me (and it’s OK that you don’t, you’re an accountant. You’re paid to be skeptical), here’s proof.
And here’s the Sales Tax report:
So there you go. Journal entries and sales tax accounts. Yes, you can.
Kinda cool, no?