 zero accounting software 2023 sales tax and bank feeds get ready to become an accountant hero with zero 2023 here we are in first a word from our sponsor well actually these are just items that we picked from the YouTube shopping affiliate program but that's actually good for you because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you these are things that we actually researched purchase and use ourselves Acer 27 inch monitor I've been using an Acer monitor as my primary monitor for a few years now this is the first Acer monitor that I have used after having used a series of different brands of monitors in the past the Acer monitor has been performing well and I'm trusting the Acer brand more and more as I use the monitor I have a 27 inch monitor which I think is ideal for what I do which is of course the screen recording and the editing if you would like a commercial free experience consider subscribing to our website at accounting instruction comm or accounting instruction dot think of it comm where we have many different courses you can purchase one at a time or have a subscription model giving you access to all the courses courses which are well organized have other resources like Excel files and PDF files to download and no commercials our custom zero home page going into the company file we set up in a prior presentation the bank feed file duplicating some tabs to put reports in like we do every time right click in the tab up top and duplicating it right click in the duplicated tab and duplicating it back to the middle tab accounting drop-down we're opening up the balance sheet tabbing to the right accounting drop-down opening the income statement changing the date range on the income statement to 2022 2022 to December of 2022 and then we will update that I'm gonna go back to the first tab and then we're gonna go into the accounts drop-down into the bank accounts and take a look at what we uploaded from the bank information for our checking account and the account transactions so I'm gonna go to the reconciled area we've been constructing our books in essence from the information that we're pulling in through the bank feeds so now we're we talked about payroll last time which throws kind of a wrench kind of messes up the process of us trying to construct our bookkeeping just from the bank feeds now we want to think about the other one which is often related to taxes that can mess us up and that's the sales tax so the sales tax is often gonna have an accrual component to us pushing us away from that cashed-based system which makes it more difficult for us to just process our books with the bank feeds let's see how it works let's go to our flowchart over here now we're just looking at a quick books desktop flowchart but I'm just looking at the flow of the forms and that's why we are using it here when we look at the sales tax what generally happens is the idea is the tax is going to be applied to the purchase the person that is purchasing so it's a usage type of tax and the idea is that it's applied to the buyer of the goods and not on us the ones that are selling the goods however we are forced to be the tax collectors that's how the taxes generally work they force us the business owner to be the tax collector on you know the government's behalf so they say you know you get if you want to if you want to keep working in this town you've got to give us protection money and so we have to give them a piece of the sales that we have here so normally of the sales tax forms when we make sales are the sales receipt and the invoice form so that's usually when the sales tax is going to be calculated we're going to calculate our charge and then we're going to tack onto it of the sales tax that we're going to be collecting from the customer now the sales tax in theory should not go on the books as a revenue account increasing revenue but should go on the books as a liability because that is us collecting a portion of the money from the client not as revenue but as the tax collector so we're going to make it a non-income statement transaction putting it on the balance sheet and then we're gonna have to pay it at a future point to the government and that's how it's generally going to work now the problem is of course if I'm trying to record all of my revenue using deposits and just record them as revenue the fact that I have this a cruel thing of reporting something as a payable is going to kind of throw off my transaction and make it more more difficult so if I was for example to just be selling something at a food truck or something like that and I wanted the easiest system possible but I'm subject to sales tax let's say whatever I'm selling it's subject to sales tax so so it's going to be difficult if I wanted to just say I'm just going to sell everything I'm going to deposit whatever I get into the bank wait till it clears the bank and record whatever clears the bank as revenue that would be the simplest thing to do from a bank feed standpoint however the sales tax kind of mess that up so we could try to adjust for that we could try to back in to the sales tax calculation I can charge people possibly the amount plus sales tax sales tax included in the charge so that so that so that then when I record everything as revenue through the bank feeds it will include sales tax and then I can break out the sales tax I can back out the sales tax so I can kind of do a workaround if I still want to be in a cash-based system but if I want to use the whole reporting purposes the whole process in zero to calculate sales tax then I'm I'm probably not going to be able to just create my books from the bank feeds but we'll have to you know enter the invoices and the sales receipts so let's first turn on sales tax and get a little bit more in depth and what I'm talking about here okay so if you were going to process the sales tax a full-service sales tax system within zero you'd have to turn on the sales tax now there's three things you kind of want to keep in mind you got to put on sales tax depend on where your location is then you need to select your items to apply the proper tax to the items the things that you are selling so zero can then calculate it and then you might have some customers that are exempt from the sales tax and therefore you're going to have to go into those particular customers and exempt them from the sales tax which would otherwise be charged given the fact that you turned on sales tax and it's being driven by the items alright so how would we do that we go to the accounting drop down we go into the advanced items so this is advanced stuff but don't get scared it's not too bad tax rates we're going into the tax rates on the right-hand side and then normally you've got your lookup tool here so the lookup tool is going to be useful because zero is getting better and better at applying the proper tax based on your location now it's going to depend on your location in terms of what taxes you're going to be basically subject to so sales tax like a usage tax and so it's great if zero can basically look up the location and then pick up the proper tax rates and apply those out that's a great tool this is a generic problem however so we're going to just put a generic tax now notice if you're in the United States then a tax is not a federal tax the sales tax is not a federal tax it's a state and local tax so and if you're selling things in multiple different states then you got to determine whether or not you're subject to sales tax if you're selling things through like another platform like an Amazon or Shopify or something you got to say who is responsible for the tax so I can get somewhat complex but we'll just imagine we're in one location and we're just going to put a generic sales tax I'm going to say new tax rate and I'm going to say the name as you would like it to appear I'm going to say California tax rate and we'll say the doesn't need a tax capital tax component if this is going to be California I got my caps lock on what's going on here my caps lock is on okay and then this is going to be let's say this is 4% and then let's say this is local because you might have multiple components of the sales tax state and local or something like that that adds up to 5% I'm just going to try to add something up to 5% and I'll say okay save it and so there we have our tax rate the next thing we've got to do is the items that we're selling apply the tax rate to it so I'm going to go then to the business drop-down products and services so we have to list the things that we're going to be selling on our sales forms I just have item one here let's just use that I'm going to go into that item and edit it and so this has inventory that we're tracking with it just to add a level of complexity for it and here it is here's our taxes right so the tax rate I'm going to say is that California tax so that means it's going to apply that sales tax so I'll say save that I'm going to say okay let's save that and then when I have a tax form a sales form which is either going to be an invoice or a receive money form let's do a receive money form because that's similar to what we might try to do with the bank fees right we're going to get money and I could put it directly into the checking account or I might put it into like a clearing account if I'm going to get multiple transactions together that I have to then put into the bank account together but I'll say checking account for now and then let's say that we have the item is going to be this item let's put the person here which is going to be a customer one and the item and now the item pulls up so there it is so notice the item is the thing that's calculating whether the tax is going to pull up or not now if you make a sale if you're selling stuff and you and you're trying to wait till something clears the bank before you before you actually record it like you're just selling stuff and you're not entering it into the system as you record it instead of charging the $500 you might then say I'm going to include the sales tax which is the 525 right or if usually that would happen if it was smaller dollar amount things right I've included the sales tax in the charge and then when it clears the bank it will already have the sales tax included and and then you'll have to back out the sales tax portion out of the sales that's how you can not use the full service and possibly try to make everything with the bank feeds but if I was to record this what's going to happen it's going to increase the accounts receivable by the full 525 the other side is going to go to sales but only the 500 is going to go to sales the difference the $25 of the sales tax is going to go to a liability account sales tax payable we also have inventory involved here which it might not actually let me record because I don't have any inventory on hand but and so I think that's going to be a problem but it would reduce inventory cost to get sold the main thing that we want to point out here is that is that this $25 you might think why isn't it included in sales why don't I just call it record sales of $525 and it's because because you could think I could record 525 in sales and then an expense sales tax expense of 25 which would get me back to net income of $500 you don't want to do that or they don't do that because the sales tax in theory isn't your revenue it's it's a tax you're just a tax collector so that's why it's going to go on the balance sheet that's also going to be important because you might if you work with sales tax you're going to get a question eventually saying look if I'm paying taxes if you're in the United States my taxes are being paid I should have an expense for all the sales tax that I'm making lowering my income lowering my taxes why don't I have an expense the reason you don't have an expense is if you did this full service system because you didn't record the revenue on the income statement both the revenue and the expenses are off income statement on the balance sheet that's the that's the idea that the full service idea you would like to do now I don't think it's going to let me record this because of my inventory yeah it doesn't let me I'm just going to delete this item and keep the sales tax so now I just manually put the sales tax in there and save it we won't deal with the inventory and then if I go to the balance sheet and update it I think I actually recorded this in 2023 so I changed it to 2023 but we'd have then the checking account is going up then so if I go into the checking account we're going to have an increase of the full amount the 525 that we put directly into the checking account and in practice if you're at a cash register you might have to use a clearing account in some cases but the other side is going to go to the income statement update the income statement into the sales let's bring this up to 2023 2023 boom 2023 bam and update it okay so there's the 500 in the sales here the 25 difference is back on the balance sheet back on the balance sheet for the sales tax payable and then at some future point we're going to end up paying the sales tax payable now how does the bank feed fit into this well if you use this full service system you pretty much have to record the sales using the normal process and then when it clears the bank you would use the bank feeds to match so the bank feeds wouldn't be recording anything new they would just be simply helping you to reconcile that's how the general process would work if you're doing the full service sales tax now you might say well what if I don't want what if I don't want to do the full service sales tax what if I want to sell stuff that's subject to sales tax and I just want to collect the money wait till it clears the bank and then and then deal with the sale and then just record the revenue making it totally automated automated well then what you can do is you could say well when you make the sales then maybe you're gonna you're gonna charge not only 500 but 525 right so when you're making the charges you charge 525 which includes the sales tax and then when it clears the bank in the bank feeds you'll record all the deposits as revenue which will result in 525 in resident revenue it will be overstated in other words your revenue because it will be including the sales tax and then you can back out the sales tax when you pay the sales tax then you you can reduce the revenue account for the tax portion so let me just show you what that might look like if you had excel for example and and we're saying okay how am I gonna set this up I'm gonna format this whole thing and currency let's make it bracketed no dollar signs okay we'll make this larger now normally the way this worked if we could say okay if I had a sale of $500 and the sales tax rate was 0.05 5% let's make that a percent home tab number percentifying it that means my sales tax dollar amount would be equal to the 500 times the 5% let's make this whole thing bold not underline bold and so my total amount collected right the what the amount I'm gonna charge is the 500 plus the 25 which includes the sales tax alright so there that's that's our transaction our normal transaction so so you can also calculate this similarly I can say well if the sales are 500 and I'm gonna say the the sale the let's say tax rate plus no 100% I can jump right there by saying 1.05 105% which is 5% plus 100% we'll get us directly to the amount collected the amount we're gonna charge including sales tax the 500 plus or times times the 105 gets us to the 525 so what you could do then of course is when you make your sales you're just gonna say I'm charging 525 which includes the sales tax right so so now you're including the sales tax in the sales and the transaction that will result from that is you're gonna say every transaction you have will be when it clears the bank account you'll see cash go up with the check with the checking account goes up by 525 and we're just gonna record everything to sales or revenue which means sales or revenue is overstated by $25 right and then you're gonna make and then you can kind of back into the sales tax that you're gonna collect if this includes sales tax and notice this gets a little complex because you might not have sold just one thing for 525 all of your sales included sales tax right and then you're trying to back out the amount of sales tax that you owe so that you can make a payment for the sales tax let's say you collect the sales in January and then in February you have to pay the sales tax portion to whoever's given you collecting protection money from you to the you know that they're saying you want to do business around here you need protection money and so it's like 5% now you might just think that you would have to you just take the sales amount of of this times 5% right times the the rate tax rate of 0.05 5% but that's not exactly right because you'll be overpaying right and we don't want to overpay for the protection money especially since they don't depending on where we are in the United States they don't seem to be doing a really good job on the protecting so so we might say no we got it what what what what really needs to happen is we need to back out the the the $25 right we need to back out the 5% so really we're kind of backing into it so if I looked at this equation if my what I don't know is my sales right that's my unknown and then I know my tax rate plus 100% is is the 105 and then I know my total is the amount collected of 525 right so we're backing in to the sales amount so if we wrote that out if we wrote that out like algebraically we'd say it was its x times the 1.05 or and then equals the 525 so then we've got to back in so we've got to divide the 525 divided by that so I can say okay this is this divided by that and that's our 500 and I could double check it and say does that make sense if I did this this and then this times this right so then so then you can kind of back into to the the the the difference so then the tax rate of course is the difference between these two this minus this there's the 25 okay so then so what would happen then is you're collecting you're collecting this amount and then when you pay the tax collector you would see that coming through the bank feeds as well and you would reduce sales by the 25 which would be a debit to sales so when you see the money coming out of the checking account the other side would go to sales and then cash checking account would go down so normally this should look kind of funny because normally we don't reduce sales because sales doesn't normally go down because if we were doing this properly we would record the sales tax portion in a payable account it shouldn't have increased sales in the first place and you might think well why don't I record something like sales tax expense which would make sense because then it would net out to net income but that's not what usually reporting people want to see for taxes and for because what because the idea is that it's not you didn't really charge 525 you charged 500 and then collected 25 as a tax collector and therefore it shouldn't be on the income statement that's why if you use this method you can kind of stay in a cash based system and have everything go through the bank fees if that's what you want to do and then when you pay your sales tax you record the other side to a decrease to sales which will bring your sales down to the proper amount of 525 minus the 25 or you know the $500 amount so again taxes throw a wrench into things whether they be payroll taxes the government throws a wrench into things in particular usually through the use of taxes but they can do other stuff that's just that's almost as not just as annoying but pretty bad to with a whole bunch of like human resource laws or something that are stupid or you know you have to have some kind of training about how you don't want to offend you know some kind of any any kind of any animal that might you might come across in the in the workplace or something I don't know what so they could I can mess things up in all kinds of ways but usually for the accounting side of things it's going to be the taxes which kind of messes us up when we're trying to do the cash based system so you can you can might come up with some work arounds and from the bookkeeping side of things again your question is do you could try to deal with clients that aren't subject to sales tax depending on the industry that you're in and your location or you could make sales tax like a specialty where you know what you're doing with sales tax for a particular type of industry for different people that have sales tax that might be subject to different state sales tax and become a specialist in sales tax for people like to Shopify where they're selling across state lines and doing e-commerce or can get quite complex that could be a specialty area or you might have a specialty and a work around with sales tax for certain types of industries where you can still stay on a cash based system in this way and and use a method which which will be more productive to automate the system by using the bank fees to create the books and then and then still being able to work through the sales tax so a lot of these state laws the government messing everything up is of course an issue but also an opportunity because all the problems that they cause require someone to figure out how to solve them right so then so then we can specialize in solving those problems