 QuickBooks Online 2022, sales tax and bank feeds. Get ready because it's go time with QuickBooks Online 2022. Here we are in our bank feed practice file. We set up with a 30-day free trial, holding down control, scrolling up a bit to get to the 125% currently in the home page, otherwise known as the Get Things Done page. In the business view as compared to the accounting view, changing to the accounting view is something you can do by going to the cog up top, switch to accounting view down below. We will be toggling back and forth between the two views, either here or by jumping to the sample company file currently in the accounting view. Gonna open up a couple tabs to put reports in by right-clicking up the tab on top, duplicating it back to the tab to the left, right-clicking again and duplicating it again. As that is thinking, let's see where the reports are located over here in the accounting view, which is on the left-hand side under the reports. Going back on over to the sample company to look at, this is the bank feed practice file, in other words, to look at the second tab to find the reports which are located in the business view, which are gonna be under the reports, closing the hamburger, open up the balance sheet, one of the major financial statement reports, the ranges, they are changing from 010121 to 123121 for the range and run. And then we're gonna go to the tab to the right, we're gonna go into the business overview again, reports, closing the hamburger, going down to the profit and loss, the other major financial statement report, the P&L, the income statement, in other words, 010121 to 123121 for the range and run. There we have those two. We're gonna go back then to the first tab to take a look where the bank feeds are at in the business view, they're in the bookkeeping area down below, they're in the transactions up top, in the banking, if you happen to be in the accounting view, then they would be under the banking on the left-hand side, banking transactions then up top. So I'm gonna close up the hamburger, these are the bank feeds that we pulled in, this is what we would be seeing if we were dealing with the bank feeds and we're gonna look at the sales tax transactions related to them, so this is what would actually have cleared the bank, their bank feed limbo, we'd have to add them from here to go into our creation of the financial statements. Now the sales tax, I'm gonna look at this from the perspective of the United States, you might have similar taxes that you can have similar ways to deal with, there's no really new tax under the sun, they've all been done, it's just which one is your particular government gonna be imposing on you and then you can try to see how you're gonna fit that into, in essence, your accounting system. So the problem with the sales tax is that it's gonna kind of force us in essence to deviate from the cash basis system that we would like to have because we're gonna have to collect the sales tax and usually increase a payable account. So we're gonna think about this from our standpoint as we have seen in the past, this is gonna be our flow chart here, this is from the desktop version but just getting an idea of how things are flowing through the system. We're trying to think of a system first off where we can be dependent as much as possible on the bank feeds and then think about how we're gonna deviate from that when necessary to go on an accrual basis or to deal with any tax regulations and so on and so forth. So the sales tax, the problem with the sales tax is that the system in order to calculate the sales tax the way QuickBooks wants to do so you have to use the sales forms which would be the invoice or the create sales receipts. In other words, we would like to be on a cash basis system or be dependent on the bank and if the easiest way to do that would be to wait till everything clears the bank as a deposit form in the bank feeds and then record the sale at the point in time that it clears the bank. But if I do that then I'm not recording the sales tax as they like to be recorded within the system or how the system is designed to record the sales tax because it should be recorded at the point of sale with the create sales receipts and the create or the create invoice type of form. So there's first let's think about how it's naturally done within QuickBooks and then how the bank feeds will fit into that process and then we'll kind of think about how we can make it more of a cash basis system possibly deviating from using these forms still use the deposit form but be able to basically calculate our sales tax. So let's first think about how sales tax works in QuickBooks if we did the full service system. To do that I'm going to duplicate this tab up top again, right click on the tab up top, duplicate again. I'm going to turn on the sales tax fairly quickly because I don't want to focus too much time on just processing the sales tax but I just want to give an example of it. When you think about turning on sales tax there's three things you need to think about. One is just turning on the tax which is often the most difficult. You want to know who's going to be the entity tax in you in the United States that's more difficult than some other taxes because it's a state and local tax as opposed to a federal tax and therefore that can be a little bit confusing especially if you're dealing with multiple tax agencies charging sales tax or you're dealing with multiple states that you make sales in so you want to be careful with that and then two once you've turned it on you need to look at the items to determine which items are taxable and probably the least important is that you might have some customers that are exempt from the taxes and you want to make sure that if they're exempt you've recorded that as you enter the sales tax for those particular customers because it'll be a deviation from the standard which is to be a taxable kind of entity. Okay so the sales tax let's first think about turning on the taxes so if I went to the taxes tab on the left hand side then we've got our taxes up top this is in the business view you've got your taxes tab on the left hand side here as well and then I'm up in the sales tax I'm going to close this out it says automatically calculate taxes create invoices or receipts we calculate the sales tax and so on and so forth let's use the automatic sales tax set up I'm going to go through this quite quickly in order to do so you're going to need an address here I'm going to use California but I'm going to try to make it as generic as possible because the same kind of idea will apply anywhere but the tax rates will be different and so on so I'm going to choose an address we need the address I'm going to choose Beverly Hills 90210 this is like a 40 million dollar house I'm thinking about buying but if you're in the market for it there it is but in any case that's going to be the location we need some kind of location so it can help us to calculate the sales tax for that location tell us more about your taxes we calculate sales tax based on what you sell and where you sell it if you sell it multiple locations we calculate the correct sales tax for each one that's one of the complications with the sales tax is that you have multiple locations that could be different I'm going to make it as easy as possible here for our example do you need to collect sales taxes outside of California I'm going to say no so we'll just say just California sales tax and so then we're going to say next automatic sales tax is all set so we have set it up so now I can create an invoice I'm going to close this out now it looks like it has been set up for us so here's the information that they gave for us with regards to the sales tax now the thing with the sales tax you got to be aware of is that the tax is theoretically not on you the business owner it's going to be on the person who is making the purchase or you're just being forced to be the collection agency by whoever the tax agency is so the idea then is that you're going to up your price by whatever the sales tax is collecting it from the customer imposing the tax on the customer then you're going to take that money and you're going to pay it to the government on behalf in essence of the customer is generally the idea that means when we make sales we're going to be collecting the sales tax increasing generally a liability account that we will then have to pay so we're going to have to pay it at some future point the question then is how often is the agency requiring you to pay it that may differ from state to state and by how much sales tax you are collecting in other words if you have substantial amount of sales the government probably wants to get paid sooner after you make the sale if you have not that many sales then they may have less of a time frame which you need to pay the sales tax so we've got monthly quarterly or yearly I'm just going to say monthly here for the sales tax and this is the schedule for this current location it could be different by where you are at so I'm just going to say okay let's save that and so sales tax is set up so there we have it there I'm going to open up the hamburger number two what you need to think about are what you are selling so in the business view we got the get paid and the pay area and we're going to go into the products and services if you were in the business view it would be under the sales area and then the product and services up top so now we need to set up what we are selling now in the United States office often times it's going to be like an inventory type of item which is one which you're going to be charging sales tax for we'll talk about tracking inventory and whatnot we talked about a little bit in the past we'll think about that more in the future I'm not going to get into the inventory tracking I'm just going to have an item that is subject to sales tax so what I'm going to do is add an item these are the things that are going to show up on the invoices and the sales receipts it's not going to be inventory that would be tracking inventory but a non inventory which means I would like to have it recognize that possibly it's a physical thing possibly subject to sales tax but I'm not going to track it with a perpetual inventory system so I'm going to say item sales tax so it's just going to be an item subject to sales tax is what I'm trying to say there and then description I'm going to have the same thing the sales price I'm going to say we sell it for $500 the income account I'm going to say is not a service item we'll keep it there we'll keep it at service item so we'll keep it there and then the sales tax is it taxable so I'm going to edit the sales tax and go into it now you could choose the category and this will be useful to basically make sure you get the correct sales tax calculation for it so that will get into detail in the weeds here QuickBooks trying to help you out to make sure that you're properly applying the sales tax to what you're selling but I'm going to go down here and just say that it is a taxable item with the standard rate so standard tax should be applied to it and then I purchase information I'm not going to have anything there we don't have any purchase inside I'm not going to be talking about inventory information for it so I'm going to go ahead and save it and close it so now we have it set up so the sales tax item is there now the third thing that you would want to think about is to see if any customers would be exempt from that in other words sales taxes on anybody that purchases this item is subject to sales tax and it will be calculated when you make an invoice or sales receipt generally unless you have a customer which you said is exempt from sales tax for whatever reason like they're the government or something like that so they don't need to pay sales tax so we could then go if I went into the customers area get paid and paid area and the customer area and if I was to add a customer that was exempt from sales tax I can then for example go into let's say customer one here and I can edit that information and I can go into my tax info and say this customer is tax exempt when I say tax exempt I mean exempt from sales tax okay so that's the general idea so now sales tax is set up I can't really wait till something clears the bank though to calculate the sales tax I got to create an invoice or sales receipt so it will properly calculate the sales tax and tax the customer if I'm using it in the way that QuickBooks wants us to use it so I'm going to hit the hamburger up top and let's for example create an invoice an invoice would be a non cash thing would be in a cruel type of thing increasing say accounts receivable let's make a customer let's make a customer let's just call it generic customer two customer add customer info hold on a second customer two that's the one I want customer two we're going to add it quick add I'm not going to add an email just for the example purposes here is what we're doing this for and we'll say this happened on let's say let's say 01 0120 0120 2021 okay and then we're going to select our item down here that we just we just created and this is us using the items which we're not using when we just record sales with a deposit this is the thing we're missing or one of them when we try to just be dependent on the bank feeds so I'm going to say this is going to be the sales tax item so there it is 500 it's subject to sales tax and so it's going to calculate the sales tax on it down below based on our location now I'm going to change this a little bit just so I can make it a generic problem I'm going to change it to a straight 5% for generic problem purposes so I'm going to click on this and here it is calculating the sales tax I'm going to overwrite it and say I just want you to use a generic five so I can kind of standardize it and not make it particular to California is my thought process here I'm going to hit the drop down and say other reason because I said so QuickBooks just do it just do what I say then stop asking me just collecting my entire life they know my entire life over here QuickBooks does anyways so there we have it and so what's this going to do now this is going to be an invoice it's going to increase the accounts receivable by the full amount including the sales tax to 525 because we're going to charge the customer the sales tax the other side is going to go to Revenue but only for the 500 the difference going to the sales tax payable a liability account which means we're deviating from a cash basis method that's one area that we're deviating and then that's going to be that's going to be the transaction inventory not affected by this particular transaction because we're not tracking inventory we'll talk about that later but note also that you could think of this as why you might say well why don't they increase the revenue account by 525 and the accounts receivable by 525 and then when I pay the sales tax it should be recorded as an expense of $25 netting out to 500 but having revenue at 525 expense 25 the difference between the two 500 the reason we don't do that or one reason is that we're thinking of this 25 not as revenue to us it doesn't hit the income statement we're just the tax collector we're the ones forced to be the tax collector so when I collect the 525 I only charge the 500 in theory I say in theory because from an economic standpoint who is the tax really being imposed on it's hard to say but in any case in theory we only got the 500 and the difference of the 25 is what we collected on the customer charging the customer by the tax collector on the tax collector's behalf and then we've got to pay it to the government so that means the revenue nor the expense it's going to hit the income statement with regards to the sales tax let's save it and close it and check it out so we'll save it and close it and say alright well then if I go back forward to my balance sheet is that what happened let's run it hold down control and then if I scroll down I'm going to say accounts receivable went up by the 525 I'm sorry not by the 525 there it is by the full amount if I scroll back up the revenue on the tab to the right if I run that again revenue went up and I just put it in the service revenue of 500 and the difference between the two is back on the balance sheet which is the liability account which they put under the name of who we're paying California department of tax or whatever you could just call it sales tax payable this is actually the vendor but that's the 25 now in the future we're going to have to pay off that 25 let's say at the end of the month so we can imagine that we collect all the sales tax for January increase in the payable and then in February we pay off the sales tax decreasing this account and decreasing the cash account so that means how does the bank feed fit into the system well I have to use an invoice or a sales receipt in order to record the sales tax you can see here I need the invoice or the sales receipt because those are the two forms to record the sales tax if I'm doing the full process so in other words I could also say well what if I'm on a cash basis system and I'm at like I could say well then when I make the sale I would generally use a sales receipt as opposed to the deposit which again the deposit would be the easiest thing to do if I could just be reliant on the bank wait till it clears the bank but I'm kind of forced to use the sales receipt if I want to do the full process let's take a look at that real quick just to see the difference let's say this is customer 3 customer 3 can't you get more inventive with the customers customer 3 that's lame whatever customer 3 and this is going to be 125 21 and then we can put this into the checking account or we might use basically a payment to be deposited which is a clearing account and so I'll use that for now because that's often times what you would do in this kind of system I'll talk about that in a second but we can make the same item down here which would be then the sales tax items so notice I'm using the service items taxes being calculated I can then see the same calculation down below I'm going to adjust the tax for the generic 5% for our practice problem purposes instead of the tax for California by overwriting it generic 5% why because QuickBooks because stop asking me questions just ah anyways so what's this going to do it's going to increase some kind of cash account because we're assuming we got paid at the same time I'm going to put it into a clearing account which used to be called undeposited funds now called payment to deposit so that I can match multiple deposits together and then put them into the bank we'll talk about that in a second and then the other side is going to go to the sales but only by the 500 and then the difference is going to increase the sales tax again by the 25 the $25 so this would be a cash basis system because I can say that I'm getting paid at this point in time but I'm not using a deposit to do it which would be the easiest thing on the bank feeds so let's go ahead and save that if I save that save and send I'm not sending it I'm just saving close it I don't want to send it QuickBooks and then I'm going to go to the tab to the right what's that going to do if I scroll back up top run the report freshening it up so that didn't go into the receivable I didn't put it into the checking account either we put it into this clearing account which is called payments to deposit used to be called undeposited funds there's the 525 the other side is going into the revenue account if I go to the income statement and run it again we've got the revenue account is now is 1,500 plus the 500 for the two things that we did invoice in the sales receipt the difference is going back to the balance sheet for the sales tax payable the sales tax payable that we owe down here which is under the California department of blah blah blah 25 and 25 adding up to the 50 okay so in order to match this up to the bank feeds then we could if I go back to my float chart let's go to the float chart we've entered an invoice in a sales receipt so when we entered the invoice it's possible we could wait till something clears the bank and match it up to the invoice or we can take the invoice and receive the payment from the customer putting it into undeposited funds or that other clearing account whatever it's called and then wait till it clears the bank matching the deposit to the received payment or we can deposit this into the actual deposit on our end and then match the bank feed to the deposit we'll talk more about those three steps a little bit later or if I created the sales receipt I could take the bank feed as it clears the bank and match it up to the sales receipt in essence making the deposit or I could take this sales receipt and deposit it and then match the bank feed up to the deposit we'll talk more about that later but those three steps and how the bank feeds can fit into those steps or however many steps that was let's go ahead and deposit it through the full system as we normally would and then we'll talk about how we can maybe set up the sales tax so that we can be dependent on the deposit instead of creating an invoice or the sales receipt is there any work around where I can basically be a cash basis system and not have to use these two forms in other words so if I go back on over normally if I go to the second tab here I have to say we would receive the payment now let's go if I had the invoice then I would receive the payment so I'd receive the payment from customer customer number two is saying they're going to pay us now let's say it happened on the 26th I won't put a method I'll just keep it there and it's going to go into I'm going to put this into the payment to deposit item here payment to deposit which is the clearing account again used to be called undeposited funds and then I'm going to check off the invoice assuming that they paid us the 525 this decreases accounts receivable puts it into the clearing account of undeposited funds I'm going to save and close that and then if I go to my balance sheet and run it the accounts receivable account went back down if I drill down on the accounts receivable account then I see the 525 went back down going back up then the other side did not go into the checking account yet but rather went into the undeposited funds or now no one adds payments to deposit which has this 1050 in it so if I go into that item we've got the 1050 in it from the payment that we received and the sales receipt then we can take that amount and deposit it into the bank so we could do that by then going to the tab to the right now notice that if I have to combine if I have to combine these two together and deposit them as one lump sum then I kind of might want to use this system because then when they clear the bank I'll see it deposit as that one lump sum so I'm going to combine those together let's see what that looks like if I go to the first tab and I hit the plus button I'm not using the bank fees I'm just going to make the deposit with the bank deposit and then match it out to the bank feeds so I'd have to actually make the deposit here I'm going to combine these two together as if we're going to deposit them at one time this is going to be going into let's make this as 127 the checking account this goes into our checking account the other side is going to decrease the undeposited funds when it goes into the checking account it's not going to do so with two separate transactions but with one 1050 we're expecting that that's what's going to clear the bank which we will see in the bank feeds and so after we record this the bank feeds will match out we're going to use the bank feeds to double check help out with the reconciliation tying out to the 1050 so I'll save and close that and save and close that and I go back to the first tab finally we hit the checking account with this amount checking account now would have that 1050 in it 1050 that we did on I don't know when we did that there it is and then we would have to wait till that clears the bank on the deposits from the bank feeds and match it out helping us out with the bank reconciliation so in that case the bank feeds wouldn't be we wouldn't be reliant on the bank feeds now you might say okay well what if how can I do this without without basically using these two forms I just want I just want to make sales I just want to make sales including the sales tax pay my sales tax obligation but then just wait till everything clears the bank and just record everything that clears the bank as revenue well you could say okay that just means maybe I'll just increase the sales tax into my calculation so I'll say so let's pull out a trusty Excel worksheet and you'd have to take on the front end you'd have to say okay what am I selling my stuff for and include sales tax in the sales price so you'd say okay let's format this sales and let's say that this is going to be I'm going to make this currency bracketed and take off the decimals so that means if I sold something for $500 just using $500 as a generic so sales was $500 I'm going to make the whole thing bold so it might be easier to see if sales was $500 and the sales tax rate is .05 or 5% I'm going to make that a percent number group percent to find it and underline it that means that the sales tax on the sale is going to be equal to the 500 times the 5% so that means that the amount that we charge to the customer customer I'm going to leave it like that I hope it doesn't bother anybody too much would be then equal to the 500 plus the 25 so we would be charging the customer 5.25 then when we charge it so what we want to do is when we make the sale actually include the 5.25 in the sales price so you can also think about it this way we could say well if the sales was 500 and I'm going to say the sales tax sales plus sales tax rate which would be equal to 100% plus the .05 making that a percent number group percent to find it underline it 105% so the amount we charge to the customer 500 times 105 so you're going to create your basically rate and then you're just going to say I'm going to charge if I include the sales tax and put that in place at the 5.25 and then every time you make a sale you can wait till it clears the bank and record it then into your system as it clears the bank and that would be of course an increase the checking account would increase every time you make the sale and it clears the bank and then the other side would be going to sales would be going to sales here now that would mean that you've over increased sales by too much you increased it by the 25% because really you only charged 500 on it and the rest was the sales tax so then you're going to have to adjust that periodically so in other words if for example for the month of January you made sales of let's say that 1060 so if sales were at the 1060 then the question is how much of that was sales tax that you're going to have to decrease the sales pie in order to pay the sales tax so one way to write that you might say okay well the sale let's say the sales is basically the unknown up top and then I said that the this is the rate plus the sales tax and I know that that is 1.05 so we'll make that a percent and underline it and then I know that the charge to the customers which is all I'm assuming taxable was the 1060 so then I need to back in then to what the sales amount was so I've got something that would look like x times the 105% or let's make it not a percent 1.05 is going to be equal to the 1060 and I can solve then for x so that means then if I go back up top this is going to be equal to this divided by this and I can double check my number this way and say if it was this times this there it would be so then I can go back in and say if I had sales if my sales charge people sales of and I had 1060 the amount that was the sales tax that I'm going to have to decrease sales by periodically meaning I'm going to write a check to the government decreasing my checking account by the sales tax which is going to be the difference between these two 1060 minus that $50 is going to be what we're charging and we're going to decrease our revenue by the $50 to get it down to the 1010 so the general idea would be then if I want to be on a cash basis and just wait till everything clears the bank and just use the deposit form to record the sales but I'm subject to sales tax then I can try to put the sales tax into the sales price when I make the sale then I'll be overstating my sales line by the sales tax and then I'll take my total at the end of the period in sales which is including sales tax is too high by the sales tax and I'll back out the sales tax portion writing a check lowering or making a payment lowering then the checking account by the amount of the sales tax the other side then going to sales which is unusual because you're decreasing sales but that's because you overstated sales before it's not going into sales tax expense you might think because really the sales tax is something that shouldn't be on the income statement at all we just overstated the sales so we're decreasing the sales back down to what they should be so that's a method and that you can basically then be dependent on the bank feeds and you can just basically wait till the sales clear the bank you can record everything that is a deposit as sales and then figure out what your sales tax portion should be periodically write the check for that and the other side and then when it clears the bank when you see that transaction clear the bank you would be decreasing the checking account and the other side would be decreasing sales bringing sales back down to the appropriate level so that's one method you might try to put in place again if you want to be dependent on just the bank feeds so those are a few methods for the sales tax