 QuickBooks Online 2023, sales tax and bank fees. Get ready to start moving on up with QuickBooks Online 2023. Here we are in our bank feed practice file. We started up in a prior presentation using the 30 day free trial. We also have open the free QuickBooks Online sample company. If you want the two open at the same time, we suggest using the incognito window or another browser to open the sample company. Support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources, such as Excel practice problems, PDF files and more, like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. You can open the incognito window if using Google Chrome by selecting the three dots in the browser, incognito window, typing into the search engine, QuickBooks Online, test drive. We're using the sample company to compare the accounting view, the one that the bank feeds practice file is in and the business view, the one the sample company is in. If you want to toggle between the two views, go to the cog up top and switch the view down below. Duplicating some tabs now to put reports in. That's what we do every time. Let's do it this time. Right click it on the tab up top to duplicate it. Right click it on the tab up top to duplicate it. Back to the middle duplicated tab to the reports on the left-hand side. We're gonna be opening the balance sheet, the big balance sheet. Where's that located in the sample company or business view? It's open in the business overview section and then the reports. That's the location in the business view by the way. Tab into the right, reports on the left. Let's open up the profit and loss as we do every time. Close up the hand boogie, change the range. 010122 tab, 123122 tab. Run it to refresh it. Tab into the middle, closing the hand boogie, scrolling up to the top, changing the range. 010122 tab, 123122 tab. Running to refresh it. Okay, I'm gonna stop talking like that. But there it is. Let's go to the first tab, open the bank feeds like we've been doing every time. Because we're working on the bank feeds. That's under the banking tab, banking up top. Let's close the hand boogie. If you're in the business view by the way, the bank feeds are in the bookkeeping and then the transaction and the bank transactions. A lot of Bs involved to find it over there. Closing the hand boogie. All right, let's go back on over. This time we're looking at the sales tax situation. How are sales tax gonna be fitting in with the bank feeds? Like normal taxes throw a wrench into the whole system when we have to deal with the sales tax. You might have a usage tax if you're outside the United States. So let's just same concept. It's gonna mess everything up. And so we're gonna have to figure out how the bank feeds fit into it. Let's take a look at our flow chart to think through that. So the sales tax by concept is a tax on the customer not really supposed to be on the business itself. It's using the business as the tax collector. So the government saying, hey, business, you're our tax collector now. We're gonna impose the tax on the customer. That means every time we make a sale, we need to determine, is this something that's gonna be subject to sales tax? And if it is, we need to collect the sales tax, track the sales tax, and then pay the sales tax to whoever's forcing us to be their collection agent at a future point in time. Now the QuickBooks system has a nice little widget or tool to help us to do that. There's kind of a couple components or three things to keep in mind when setting up the sales tax. One, you gotta turn on the sales tax. You've gotta in doing so put the correct items, who's where you're subject to the sales tax. Two, and then two, you've gotta assign your items to determine which items you're selling are subject to sales tax. Some might not be subject to sales tax. Some might be things sales of inventory are often more likely subject to sales tax in the United States at least. And then three, are there some customers that are exempt from the sales tax even though other customers may be subject to the sales tax because they're a charity or they're not the end user or something like that. And so those are the three things we gotta kind of keep in mind. Now, with regards to bank feeds, we noticed that on the sales side of things, it depends on the industry we're in in terms of how we can deal with the bank feeds. Because in the easiest situation, if we're in like gig work or something, we can just basically wait till it clears the bank, record the sales with the deposits. But if we're in a cash register situation, we'll often want to enter the information into the sales receipt form, then make the deposit using the bank feeds as more of a check, an internal control form to help us with the bank reconciliation. And if we're on an accrual system, we would have to invoice, receive payment, record the deposit. The bank feeds typically helping out once again as kind of a check and helping us with the reconciliation as opposed to recording the actual transaction. Now, you can imagine a situation where you're subject to sales tax using the easiest method over here if you're able to and just waiting till everything clears the bank and then just recording revenue with the deposit form. If you're using that system, you can't really use the sales tax widget that's designed to be used within QuickBooks because QuickBooks has designed the system to record sales using the sales receipt and the invoices. If you just record a deposit, you don't have the items. The items are gonna be necessary for QuickBooks to try to track the sales tax component to it. So you can't really do it with just the deposit form if you're gonna use the full kind of widget system within QuickBooks. Now, you could work around that. You could just basically charge people the amount plus the sales tax and then you can kind of back into how much sales tax you owe based on your earnings. And so we might take a look at that in a second. But that's the first thing to note. If you're using the full service system within QuickBooks, then you're gonna have to use an invoice or a sales receipt to record the transactions and you're gonna have to set up the items so that you can drive the sales tax that will be recorded at the point of sale. And then we can use kind of the sales tax widget to pay the sales tax at a future point. So let's see how that works. Let's quickly kind of turn on sales tax. I'm gonna right-click on the tab up top, duplicate it again. I'm gonna pull that tab over to the left-hand side and let's go on to our tax information on the left. So we've got the tax information on the left. I think it's pretty much the same on the business view. They got a taxes tab on the business view too. So pretty much the same. So we're on the sales tax. So that's the first tab here. It says automatically calculate sales tax for each sale so you can create invoices or receipts to calculate the sales tax rate based on date, location, type of product and so on. We keep your sales tax updated when laws change. So one kind of quirk on sales tax in the United States is it's a state tax, not a federal tax. Therefore it can change depending on location and that can cause complication when you're trying to do sales in different states or something or e-commerce and that kind of stuff. But in any case, let's use the automatic sales tax here. It says here's the address that's gonna be used. So this is the address I typed in. So it's gonna try to determine that as the locale for which the sales tax will be subject based on the state and local of that area. And so I'm gonna say, okay, tell us and if you have a different location, that's okay. I'm gonna set up like a generic one so you can see how it works too. We calculate sales tax based on what you sell and where you sell it. If you sell multiple locations we calculate the correct sales tax for each one. So that's great. Do you need to collect sales tax outside of California? So if you're subject to sales tax outside of one state that will complicate things a bit, QuickBooks can help to set that up. I'm not gonna get into the detail on that right now. I'm gonna go to the more simple component and just say no, just one state at this point in my case, California. Looks like you need to pay taxes to just one government. We call this your tax agency, California Department of Tax and Fee Administration. Sounds very bureaucratic, sounds very California-like. Okay, let's do the next one. So automatic sales tax is all set. So now we can create an invoice if we want. I'm not gonna create an invoice yet, not from here. I'm just gonna close this out. And then it says how often you file taxes. You can find this info on your sales tax business registration. If you can't find it or if changed, check out the table. So generally when you set up your sales tax with the government entity, they're gonna tell you how often you have to pay the tax. So filing frequency. So in other words, depending on your location and usually also depending on the level of sales you make, then you might have to file quarterly, yearly or monthly. So if you have very little sales, for example, the government might say, well we're just gonna make you do it yearly because we don't really care, you don't make that much money. But if you make more money, it's likely that they're gonna say, we want you to file quarterly because now it's starting to get significant and we wanna make sure that we're getting a piece of your action. And then if you get more money, then they want it monthly because now they're like, yeah, we gotta get our hooks deep into your hide this time because you're making some cash over there or whatever. So here's the table that they generate just from the information based on the location. So you probably wanna go from the documentation you get, but there's the limits. So average monthly liability, blah, blah, blah, and the filing frequency. So here's the source of it. If you wanna check out the URL, that's where they're pulling it from. They're saying, I believe. Let's save it. And so now our sales tax has been set up. So now we've got our tax kind of information up over here. And then you've got your activity that's basically happening down below. And then you've got your economic nexus. So all states have rules. This is kind of neat because it can give you kind of more the rules and information on a state by state. It's kind of more of an informational type of thing. And then this side, if you needed to edit your sales tax, we'll give you the tax agency, basically kind of like a vendor that you can edit over here, and then we can add another one. Now I'm gonna add another one just because I wanna make a generic like 5%. So if you're following along and you're making a generic problem and you don't live in California, then you can make like a generic one here and say single, I'm just gonna say practice tax agency. I'm just gonna pick the same agency, but I'm just gonna make it a generic 5% is the point. So I should have the option to put the generic five in place. Hopefully when I start doing my sales tax just so we can make it a generic problem. So it's not a California Beverly Hills problem only. Okay, but if you're in California Beverly Hills, you could follow that along too. So that's no problem either. So let's go back and then we're gonna say, then the next step is that we're gonna have to set up our items to calculate the sales tax because now if I hit the plus button when I make an invoice or a sales receipt, invoice a cruel method, sales receipt if we're on a cash based method, then the system can only apply the tax by the item. So all we have now are these generic items that were imposed or created by QuickBooks. Let's make up our own items. So where are those like created? I'm gonna say no, don't save that QuickBooks. If you would open up the hand boogie and those are under the sales on the left hand side all the way to the right. You got your product, you got your services. If you're on the sample company, it's in the get pay area and then you're down in the products and services. And so then in here, I'm gonna close up the hand boogie. So there's our items that the generic ones they set up to set up a new item. We can go to new on the upper right. I'm gonna set up an inventory item because it's the most complex one and the one most likely subject to sales tax, but you could have a non-inventory item that means you're not tracking the inventory in the system. So it's an inventory thing, but you're tracking it not in the system, possibly tracking it using a periodic system. Service would indicate that it's a service item, no inventory involved. Let's go with inventory because it's the most complex. I'm just gonna call this inventory inventory sales tax. What is this? Inventory sales tax. For my example, I'm not gonna do an SKU. You can do a picture of it. I'm not gonna put it into a category. Initial quantity on hand, zero. And then, well, let's put a quantity on hand. Let's actually put five on hand. That's gonna make a journal entry, putting some of them on hand, which will increase inventory. The other side going to opening balance equity, most likely. And let's put this back in 2022 and January of it, let's say, and reorder point at zero. Okay, so then inventory, that's good. Description, okay. The sales price, let's say we sell them for 125, sale of product, that's gonna be the revenue account when we sell it, looks good. Here's the taxable item. So it says here, it's taxable. You've got a couple of ways that it can determine whether it's taxable based on what you're selling, or you can go down here and it just says it's taxable based on location. It's kind of a generic taxable item, so I'll pick that. That's just gonna subject it to the sales tax. Purchase information, boom, I'm gonna say then, we buy them for, let's say $50, cost of goods sold is the expense account, expense when we sell it. I'm not gonna have any preferred vendor. Let's save it and close it. Okay, so there's one other thing we gotta think about, and that's gonna be the customer if there's any exceptions, but before we do, this'll be enough to get us generally going. So if I go on over and I say, let's just make an invoice and say that it's gonna be for customer, let's make it customer two. I'll just make up another customer, very creatively named customer. If I do say so myself, my creativity is astounding. Astounding. So let's make this as of 06, 15, 22, let's say, and then I'm gonna say my inventory item is inventory sales tax, boom. So there it is. So now the tax has been applied and then down here it applies the tax based on the location. I gotta click off on it so then it does it based on the location. Now we can also then I can apply my generic 5% that I set up here, generic five just to make it a generic problem. And you can also change the math down here if you needed to. Like if you wanted to make it a generic problem or the math isn't right for whatever reasons, you can override it by going into here and then change it. You just have to give it a reason and it'll do that. So that's cool. And so that is that. Now, before I record it, there's one other thing that could throw off the whole system and that would be if the customer for whatever reason is not subject to sales tax. So the item would indicate it's subject to sales tax but the customer is not or possibly the customer subject to a different location kind of sales tax. And so then you can set that up when you set the customer up. So let's check that out. I'm gonna close this and go back into the sales center. Sales center. Let's go into the customers. And there's customer number two that we set up. Customer number two. And let's go ahead and edit customer numero dose. And down below, we've got the taxing information. So right here it says this customer's tax exempt. So you can make a tax exempt or the sales tax rate. Again, you can assign one of the two, I've got these two rates that we have signed. So we could make this customer always be picking up the 5% instead of it being based on location here or we can say that they're not subject to sales tax possibly for one of the reasons listed below. Let's say they're a charitable organization for example and then say save it. And then I can go back into making an invoice for customer number two. Customer number two. And then I can say that this is gonna be inventory sales tax item. It's still subject to tax over here but no tax is being calculated. So if you see that happening and you're like, what in the world, man? I've got the tax up here, nothing's calculated down here. Why possibly your customer is exempt from taxes even though the item says it's taxable. Okay, so let's go back to what it was before. Closing that back out, closing that back out. And then I'm gonna say edit this and say you're not special customer two, you're not special, your charity's a scam. I'm taxing you like everyone else. We're gonna say they're subject to tax just like everyone else. Spent all that money, that charitable money on your vacation. I saw that. So now I'm gonna go back on up and say invoice and say, let's say this is customer number two again. And so this is actually a fairly complex transaction that this records now. And so what's this going to do when we record the sales tax? It's gonna, there's inventory involved so there's a lot going on. It's an invoice that's gonna increase the accounts receivable. It's gonna increase the accounts receivable by the full amount, including the sales tax. Let's make it the generic five, generic five, including the sales tax to 131.25. Revenue is gonna go up by the 125. The difference is gonna go into the, to the sales tax payable of 625. It's not gonna hit the income statement. That's kind of weird because you can imagine it, why don't I just record income as 131.25 and then when I pay the sales tax, I record a sales tax expense because the sales tax is not in theory subject to you, your business. It's, it's, you're just a collection agency. It's not part of your revenue and it's not gonna be part of your expenses. That's the idea. It's gonna go on the, it's gonna go on the, on a balance sheet account. And then also inventory is gonna go down by I think we said $50, the amount that was driven by the item here for the cost. And we're gonna have the cost of goods sold go up the net impact on net income will be 125 minus the cost of goods sold at which I believe was the 50. And we also have a sub ledger for, for the customer to, which will track the accounts receivable that we'll need to collect in the future and a sub ledger for the inventory item now because we're tracking it on a perpetual inventory system, tracking it by unit. So let's save it, close it and check all that out and see if that is indeed the case. Going to the, to the balance sheet, running it and then scroll down. So now we've got the accounts receivable. So if I go into the AR, there it is. And that's for the full amount of, hold on a second. That doesn't look like the right one. That's not the right one at all. Let me change the range up here. Did I put it in for 2023? 2023, boom. There it is. Let's bring that back to 2022. I'm going to change the date going into that one. Let's bring this back. You're too far in the future. You're too far in the future. We're working in the past, man. So there, let's do that. Let's save it. All right. So there it is, 131.25 going back. The other side's on the income statement, running it. So now we've got the sale of product going into it. There is the 125, scrolling back up. The other side is in the sales tax. And this is where our focus is, of course, where they put this long account name, California department. That's because you might have multiple sales tax. You would think you would just call it sales tax payable, liability, because you owe it in the future. But they put this long name because you might have multiple people that you might be paying the sales tax to you. There's the 625 and inventory's going down. So inventory went up when I added like the beginning balance of inventory. And then it went back down by, I believe, this 50, this one right here, that one right there. So scrolling back up and then the cost of good sold over here on the income statement is affected. And we're also tracking the inventory and the sub ledger for the customer. So the point is, the main point we're looking at, of course, is the fact that I had to enter an invoice or sales receipt and the item in order for me to get this payable to track the payable that I'm in the future going to then pay with the sales tax widget. So we can imagine after a month or after a quarter or after a year, we're going to have to take the money that we collected from the sales tax, which is going to accumulate in the liability account. We'll use the sales tax widget over here, which is going to be in the sales tax area to then pay the sales tax using the pay the sales tax, which is a little bit difficult to kind of view in real time because I mean, it's difficult when you're trying to do it like in the past in a practice problem because the sales tax runs kind of real time, but it'll generate a check when you have an amount that you owe here, you can generate a sales tax check based on what you owe and that will decrease the sales tax here when you pay it. So the point is, if I look at my flow chart over here, I have to then enter my sales tax if I'm going to use that widget method, the whole cool little widget thing within QuickBooks, I have to enter my sales using items, using invoices and sales receipts because those are the things that help me to track the sales tax. So I can't really just wait till something clears the bank if I want to use that cool little tool. Now you might say, well, wait a second, I don't want to turn on, I mean, I want to just make my bookkeeping as easy as possible and just wait till something clears the bank. How can I work my sales tax into a nice easy system like that? Let's say you're just going to make sales, I'm not even going to track the customers or whatever, I'm just going to make the sales and once they clear the bank, I'm just going to record it as revenue. Well, then what you might end up doing then is to open up a trustee Excel worksheet and you can say, okay, that just means that when you make the sales, you're going to want to include the sales tax in the sales. So I'm just going to show you just a quick little worksheet on that and just to give you an idea of how you might do that. So let's just say, for example, that let's say you had sales just to get an idea of this of $500 and the sales tax rate, let's say is that 5%, 0.05%. Let's make this bold and I'm going to make that a percent number percent to find it. So if I multiply this out, let's add decimals to this whole thing, adding some decimals. All right, then I'm going to percentify underline and this is going to be this times this and so that's going to be your sales tax, right? And then so the total price is going to be this times this. Well, hold on a sec, that's not right. It's going to be this plus this. So if we sold something for $500, then the total price plus the sales tax is going to be the 525. We can get there quicker to the sales price by saying, okay, well, if the sales is going to be 500, then I'm going to say, so 100% plus plus sales tax, right? Sales tax rate. 100% plus sales tax rate, which is going to be equal to one plus 0.05, one plus 0.05, 0.05, which is 1.05. Or if I make it a percent, 105% underlining that, that will get us to our sales price, right? That's going to get us to our sales price. Now, the tricky thing is if you made a bunch of sales, then you would think that you could say, okay, if I made a bunch of sales and all my sales sales, including tax, we're at this amount, 525. And then the thug comes into my place and says, you need to pay me protection money. You need to pay me protection money at 5%. That's the government. And we're like, oh God, here we go again. Okay, we'll pay you the 5%, right? If you're going to protect us, just like you did with that COVID, you shut us down. You shut me down. Anyways, we're going to say 0.05. Let's make this a percent. And then you would think that you could just say 525 times the 5%, right? But that's not exactly right. You'd be overpaying the sales tax if you were to do that. So you can't take your end sales and multiply it times the 5% because the sales that you made already include the sales tax. So if you're taking your end sales, like all your sales are at the 525, then how can you back into the sales tax? So if you make all your sales, you can imagine you make all of your sales and instead of recording this liability account here of the sales tax liability as you make the sales, you're just going to record everything to revenue, which includes the sales tax portion of the sale, which means you're overstating the revenue account. But then you're going to make an adjustment at the end of the period for your sales tax, right? You're going to back out the sales tax. And then, so when you back out the sales tax, you can't just take your sales times the 5%. It has to be something, you know, you got your equation. Your equation is, well, I know what, I know what my, I know what my, let's just copy this equation over here. Like here's my sales, here's my that, and then here's my total price. So it's the same thing, but I'm really kind of backing into this number, right? Because I know that this is the 1.05 or 105%. I can percentify that. And the sales and the total price I know is this 5.25. So I'm basically backing into the sales number. So you can write out your algebraic equation, which would be something like this would be X, right? So it's going to be X times 1.05 equals the 5.25 and you're backing into X. So if you do that, I'm going to say this is going to be equal to this divided by this and there's your 500 and you can double check it by multiplying it out this way. And then you get the right amount. Otherwise, and then, you know, so if that's the, so the actual tax you're paying is 25, not the 26, 25. So what you'll end up doing is whenever you make the sales and you record the sales with the deposit, like the accounts that will be affected as cash is going to be going up by the full amount of the 5.25 that you're recording and you're in trying to include the sales tax in the sales price. You're just going to say, here's the price, plus it includes the sales tax, right? And then you're just going to record the whole thing as sales because you're just going to record it as sales when it clears the bank. Then you're going to have your overstated statement of sales when you pay the sales tax, then you're going to say, okay, then I'm just going to reduce sales, which is unnatural. That's, you don't usually reduce sales, but we're going to do it here because we overstated the sales and we're trying to make a simple system. And then the other side is going to go to cash. So then sales will go back down to where it should be, which would be this minus the 25, the 500 instead of the 5.25. So you can, so if you're on a very simplified kind of system and you have to deal with sales tax, then the bottom line is you might just include the sales tax in the price of the stuff you're selling and then just make sure that when you're calculating the sales tax, you're not just calculating it based on the total sales. When you're paying the mobster that comes in and says that you got to pay them protection money, you're not just going to take it on the total sales item here, the mobster being the government, right? You got to instead make sure that you're properly calculating the tax backing into the sales amount, otherwise you're going to overpay the sales tax. And then you can, and then when you pay the tax instead of paying down the liability, you're in essence reducing the sales back down to where it should be if you're not including the tax. Because you can imagine a situation where you're going to say, and maybe you think the other side should be sales tax expense, right? That's what you might think it should go to. It would go there if you thought of the sales tax as an ordinary and necessary business expense and the sales revenue as revenue. So you could do that too, but that's not something you want to report on like your tax return or anything, like sales tax expense, because it looks like, because it's not supposed to be an income statement item, right? That the idea of the sales tax is it's not hitting the income statement. So that's why you to reduce kind of revenue with it. Okay, that's the general idea with the sales tax.