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Here we are in QuickBooks Desktop Bank Feed Practice file going through the setup process we do every time in the view drop down we got the hide icon bar the open windows list checked off the open windows they're open on the left hand side reports drop down company and financial opening up the major financial statements with the profit and loss change the range 010122 to 123122 and then customize it so we can fonts and numbers to change to 14 okay yes and okay then the reports drop down again company and financial but this time the balance sheet standard we're going to customize it up top changing the range in from 010122 to 123122 and then fonts and numbers that needs to come up to 14 okay yes and okay we'll also open the bank feeds and the banking drop down bank feeds the bank feed center would only be there if you got the bank feeds turned on which we did in a prior presentation opening that up so now I'm going to be in the unrecognized items and we're now thinking about the sales tax now the sales tax is something that's going to kind of throw a wrench into our system of trying to create the financial statements directly from the bank feeds as taxes typically do throw wrenches and systems so if I go then to the home page here and just think about how the sales tax works I'm looking at this from a United States perspective but if you've got a usage tax you'd have a similar kind of process in the United States the sales tax is going to be imposed not on the federal level but possibly on the state and local level and you might be subject to you know multiple different sales tax depending on the type of industry that you are in and the locations that you do bed business in and usually the sales tax will also be applied not to service items but generally to inventory type items now the general idea of the sales tax is that the tax is actually supposed to be imposed on the person that is purchasing the goods and services we the company then are just the tax collector the government has forced us to be their tax collector so as we make sales we're going to be collecting the tax from the customer and then paying over the tax we collected from the customer to the government now you can imagine the systems we've been looking at here is trying to have a system on the revenue side on the customer side of things where we can basically collect the money and wait till it clears the bank before we record it as revenue thereby using the deposit form through the bank feeds to record the transaction which isn't the natural form used to record revenue as we've seen in the past which even if an attack on a cashed based system would be the sales receipt on an accrual based system would be the invoice so if we have the taxes then the deposit forms not gonna do what we would normally do if we had the full system of taxes set up for sales tax within the system so we might still be able to put a work around there if we want to still wait till everything clears the bank before recording the sales tax however let's first think about how the actual system is designed to work and then we'll go in here and we'll think about how we might be able to adjust things and try to calculate a manual sales tax so if you're gonna turn sales tax on in the system then the general process would be we're gonna charge sales tax when we have an invoice or a sales receipt and then we're going to pay the sales tax usually using a sales tax widget which will be appearing up here in the vendors area once we have the sales tax then set up so let's just and there's three kind of components to the sales tax one you got to turn the sales tax on you've got to set up the items and so on when you turn the sales tax on that will help you to calculate the proper attacks which will then appear and these calculations for the invoices and sales receipts then you got to set up items whether so that the items can determine whether something is taxable or not and then you got to think about the customers and see if there's customers that possibly are exempt from the tax or possibly if you have different locations you can set up customers for different locations let's set that up quickly and just see what it looks like so if I go to the edit drop down preferences and we go down to the sales tax company preferences I can say let's turn the sales tax on boom sales tax is on and then we could set up our sales tax items here if we so choose we can also do it by going to the lists and items drop down I'll do it here quickly I'm just gonna make some example items so I'm gonna say this is a sales tax item this is the same area with the service or inventory items but we want sales tax sales tax name I'm gonna say let's say this is California State sales tax description California State I'm gonna make this 4% which isn't which is just an example I want to make the total 5% I'm just gonna make an example 4% tax agency I'm just gonna say California State tax collector which is a generic thing to again I'm just keeping it kind of generic I'm gonna quick add that's a vendor so I'm gonna add it and say okay I'm gonna set up another item which is gonna be a sales tax item and I'm gonna pretend this is the Calif is gonna be California local tax so we got the state and local I'm gonna say that's 1% the total of the two will add up to 5% I'm gonna call this California local tax collector as the agency just for generic problems sake quick add and then okay and then I'll set up one more which is gonna be a group which I'm just gonna group those two items together I know I'm doing this quick but I'm just given I just want to give an overview of how the system works so it's gonna be a group and we're gonna set up the items in the group which are gonna include this one and this one so now we've got the full 5% the group name California sales tax so there we have it and so I'm gonna say okay okay and then what I want to show up in here is just gonna be that group that group is what I want to show up as the default so your most common sales tax will be the group which will show up by default if something is taxable which will be driven by the item so I'm gonna say okay and then make all all existing customers taxable that's the general rule and make all existing non inventory inventory parts taxable I'm gonna say okay and say okay closes everything up I'm gonna go back into the company homepage and then the next thing we set up are the items items are going to be used when I make a sale invoice for the inventory or the service items with these two forms so lists drop down item list note that we also have the sales tax items here so we could have set up our sales tax items directly in here as well although when you put the default in there you need to make the default as the group in the company settings that we looked at item drop down new item I'm just gonna set up a generic inventory item and so I'm gonna say inventory item number three let's say and I'm gonna say that we buy it for let's say $300 cost of goods sold will be the account we hit when we sell it I'm not gonna put a vendor there and then we sell it for $500 let's say and it's a taxable item so it's a taxable item and then we're gonna say the income account will just say sales generic income account and inventory will be there when we purchase the item so and let's just say that we have one on hand right now let's say we have like 10 on hand as of let's say 010122 so that should be good this will record a beginning balance this one right here so this will actually record a transaction of the 300 times 10 for the inventory to be on hand I believe so let's say save it and close it and so then if I go into it closed up all my reports let's open the reports back up let's go into the profit and loss I won't make you watch me do this I'm gonna open the reports okay the reports are open so now we've got the inventory items you can see the journal entry it made if I if I go into here it made it with an inventory adjustment and the other side of put to opening balance I'm not gonna get too into detail on those opening balance or beginning balances right now but but there's the other side just so you can see the transaction I just want the inventory on hand so we can record something with the sales tax so then I'm gonna go back to the home page one other thing we might want to consider now that we've got the inventory item that's gonna drive whether something is subject to sales tax is the customer by going to the customer center and I say I pick a customer let's just make up or here's customer number one let's just use that one if I double click on them and we go into their tax settings notice the tax code says they're subject to tax if they were not subject to tax we can then say they're not subject to tax and then even though we have a taxable item we're selling it wouldn't be charging them sales tax the tax item then usually if we don't have anything here it will always be defaulting to the one we put in the preferences which is the group if we had multiple tax items then we would need to set up each customer to make sure that we're taxing them in the proper location so so here we don't really need it but I'll do the same group and we'll say okay and then we can either have an invoice if it's an accrual component or a sales receipt even if we're on a cashed based system we would still kind of need a sales receipt as opposed to waiting till something clears with a deposit in order for the system to calculate the sales tax that's why we still have to use kind of a full service system if we want sales tax to do what it does so let's see how that would work if I go into this one customer number one make this as of most of our stuff was like 10 0 1 2 2 and let's say we're gonna sell item 3 I believe it was and there's $500 so now it's charging this out and what's this going to do it's going to increase we're gonna put this into the undeposited funds we could deposit it directly into the checking account but the default is to go into undeposited funds we might talk more about that later but then the other side is going to go to sales the amount going into undeposited funds being the full amount including the sales tax the other side goes into sales but only the 500 not including the sales tax and then the sales tax which is now being calculated as you can see here with the 5% is gonna go not to revenue but off the income statement onto a liability account of sales tax payable notice that the sales tax does not hit the income statement using this method that's what is preferred because it's not something that we're charging in theory it's something that the government is charging and forcing us to be their tax collector so we're not going to record the $25 as income and then expense $25 when we pay it when we pay it we're just gonna take it off of the balance sheet so it's a non-income statement item it just goes up and down on the balance sheet and then we're gonna also have inventory which is gonna I think we put on this 400 that's driven by the item decreasing inventory the other side going to cost a good soul that's not where our main focus is right now let's save it and close it and just check that out if I go to the balance sheet we now have this undeposited funds that went up by the full amount the 525 the other side is going to revenue on the profit and loss in sales of the 500 only not including the 25 sales tax and then the difference is going into the liability account of $25 sales tax payable which we would then have to pay to the government at some future point which would be lowering this amount and lower in the tax return so then we also had inventory impacted here so inventory is going down by the 300 and that's driven by the item and cost of goods sold just so you can see the inventory that's not where our focus is but cost of goods sold as is impacted as well so if I go back then to the balance sheet so now we've got this sales tax payable and we'd have to pay off the sales tax payable now how do the bank feeds fit into this well the bank feeds then I can't really wait till something clears the bank because I got to calculate the sales tax would be that if I want the full service sales tax on so I'm going to have to create the transaction myself here and at least make this transaction or possibly make the full deposit into the system so if I go to record deposit for example and then I'm going to pick this one okay now I'm going to take it out of undeposited funds and put it into the checking account so I'm going to save and close this that'll be as of us make it as of 10 1 that's fine and then now it goes into the checking account so undeposited funds is now is now gone and it goes into the checking account up top so now I can go into my bank feeds how would the bank feeds fit in I have to open them back up they closed them again bank feed center then you'd have a deposit going going into the bank and I'd have to use the matching tool over here in order to match meaning the bank feeds wouldn't be used in order to create the transaction but rather just use to match up to the transaction that I had to enter on my end so that would be the full service way to do this and then of course you'd have to pay the sales tax generally using the sales tax widget right here and then you pay the sales tax and that would create another check form and if you want to use the sales tax widget once again you can't wait till the transaction clears the bank to record it but rather need to record it with the sales tax widget and then match it out to the bank feeds now you might have to say well what if could we do a workaround so that I could try to make all my sales just deposit them into the bank and then use these the deposits to record how can I work the sales tax into an easy system like that instead of turning on the sales tax and whatnot is there is there an easy workaround that I could work if I have a small you know cash based system or something like that well one method you can try is to say okay every time I make a sale I'm gonna I'm gonna make the sale including the sales tax and then I'm just gonna put that in the sales price so in other words I'm not gonna wait till someone comes up to the register and then say hey yeah now sales tax now you're now your amount went up by $25 instead I'm just gonna say no this is the price plus the sales tax and charge them including the sales tax and then wait till the transaction clears the bank if I want to be on a cash based system record it all as revenue and then when I make the sales tax payments I'm gonna have to pay the government whatever I owe them and I'll decrease cash and actually decrease the sales account so that I'll be back in the proper spot after I make that second payment so that might look something like this for example if I open up Excel I'm gonna format the entire Excel worksheet right click I'm gonna format it I like to go with currency brackets and I'm gonna I'm gonna keep the decimals I want decimals only two of them though and then so there we have that and so let's just see what let's just write down what we had when we made that sale we said that with the sales price so sales price was $500 and then we charged sales tax rate the rate was 0.05% or 5% how if I percentifies that and underline it and so that means that the sales tax was equal to 500 times 5% or $25 and so that means the total the total price including sales tax was 500 plus 25 so I can also I can also get there a little bit more easily I'm gonna make this column skinny by saying okay well if the sales price is 500 then what's the price gonna be including sales tax so we're gonna say the rate is gonna be equal to 1.05 or 125% and underline that so that means that my total price that I can charge 500 times 105 is 125 right so when I when I sell my merchandise I'm not gonna say yeah it's $500 when you bring it up to the register I calculate the sales tax on it and we get up to the 525 we're just gonna say hey the sticker price including sales tax is 525 at this point in time to simplify the sales process and then when I make the sales then I can sell them if I want to make the deposit into my bank account and wait till everything clears the bank then I would record this full amount basically as revenue so when it clears the bank I would I would record it into the system with a transaction looking like this it would be cash would go up by 525 and then I would have the the revenue go up by the negative 525 which isn't exactly correct because now my revenue would be overstated by $25 right and so then I'd have to say okay then I'm gonna pay the sales tax at some like if I collect the sales tax for the first month then I'm gonna have to pay the sales tax in and say the following month so so if I collected this in January maybe I have to pay the sales tax by the end of February so I'd have to go into January sales and notice what I can't do I can't really say sales if I say my sales including the sales tax was 525 this number then I can't really just take point oh five percent of that and say okay that means my sales tax is 25 right you would think that that would that you'd pay then 2026 25 but that's too high because because this sales amount actually includes the sales tax so what you have to do is kind of back out the sales tax so it really looks something like this algebraically right it really looks something like this you're saying okay well if the sales are really gonna be kind of the unknown here right and then the rate that we have I'm gonna use this rate the 105 would get me to my end result the total the total sales the total amount that we collected in the month which would be the we said the 525 then we can back into the sales which would be then this number divided by this number algebraically and so that means that the sales tax is actually the difference between the two this minus this the $25 not the 2625 which we can really calculate just to double check it we can say okay if we had $500 sales times 1.05 that should get us to the end result of the 525 right so so you could then make your sales based on including the sales price and then include them when you make the sale so for example if I went into QuickBooks here and we said okay if I went to my profit and loss and let's imagine that we made these sales 2000 2006 4044 and all those are subject to sales tax right so now I'm gonna I would do the same calculation I'd have to say okay if that's the case then I'm gonna make this a little bit smaller I'm gonna I'm gonna say those those sales are or this is like this is really total collected is going to be the 265044 2650.44 but I can't really just multiply that times 0.05 if that's the sales tax rate because again that number includes includes the sales involve you know that includes the sales tax so once again I really got to say okay well that means that the the the sales I don't really know that's the unknown and then the rate I'm gonna have is 1.05 a hundred and five percent should get me to the amount that I collected the total that I collected which is known to be this so that means I can back into it and say say okay that means that this is gonna be this divided by that so there we have it I could double check it and say this times this and so so there we have it so then then you'd have like two transactions so the difference here would be the sales tax be this minus this so if I was to see so there's obviously again there's gonna be a difference otherwise we would be kind of overpaying the sales tax so when I record all the sales all the sales would would end up with a transaction which would look something like cash went up by the total of the 265044 and then revenue goes up by 265044 but then I'm gonna calculate my sales tax and bring revenue back down so now I'm gonna bring revenue back down which is unnatural but right because we overstated revenue now we're gonna bring revenue back down and then cash is gonna go out we'll see that go through the through when we make the payment we could wait till that clears the bank as well and so now the net revenue will be properly calculated at the 2524 here after we do the transactions and that way we can kind of stay in a cash-based system if you really wanted to even if even if you have to deal with sales tax which can be kind of a confusing issue until you get a till you get used to it so that's the that's the general idea or some concepts that could be useful to work around the wrench in the system of taxes in this case the sales tax