 QuickBooks Online 2024, pay sales tax, get ready and some coffee, because we're sketching out the bookkeeping process outline with QuickBooks Online 2024. First a word from our sponsor, actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us. But that's okay whatever, because our merchandise is better than their stupid stuff anyways. Like this CPA thinking cap for example, CPA thinking CAP, you see what we did with like with the letters and this CPA thinking cap is not just for CPAs either, anyone can and should have at least one possibly multiple CPA thinking caps, why? Because based on our scientific survey of five people, all of whom directly profit from the sale of these CPA thinking caps, wearing this CPA thinking cap without a doubt according to the survey, increases accounting productivity tenfold, at least, apparently the hat actually channels like accounting energy from the quantum field ether directly into your head, allowing you to navigate spreadsheets faster. It's kind of like how in like the matrix when Neo learns kung fu or at least that's what the scientific survey saying, so get one because the scientific survey participants could really use some extra cash. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are in our get great guitars two thousand twenty four quick books online sample company file we set up in a prior presentation going to the reports on the left hand side like we do every time. I'm going to close the hamburger right click on the balance sheet within the favorites and open link in a new tab right click on the profit and loss open link in a new tab and the same with the trustee TB trial balance. Let's go to that middle tab we opened up close up the hamburger on the balance sheet and change the range oh one oh one two four tab oh two twenty eight two four tab seen it in a month by month side by side running it tabbing to the right closing the buggy hand buggy that is and changing the range in oh one oh one two four tab oh two twenty eight two four tab month by month breakout and refresh and then tabbing to the right repeating once again the date range oh one oh one two four tab oh two twenty eight two four tab month by month side by side running it. Let's go back to the balance sheet to consider the next step we're going to be taken here that being the paying off of the sales tax remembering that the double entry accounting system itself is universal it's basically like math so it's going to work no matter what place you're located in however you'll be dealing with different currencies but the concept will be the same things will differ where laws happen because laws are going to be specific to particular areas and with bookkeeping the most disruptive laws are of course the tax laws so we're here I'm thinking about sales tax which is a type of usage tax note also that there's no new taxes under the sun in essence governments have come up with very invent all the inventive ways of taxing really what we have at this point in time is just a combination of those types of taxes that are then going to be applied in different locations so sales tax kind of usage type of tax so there's going to be a tax applied at the point of sale and basically the idea is that the government is going to make the employer their tax collector trying to pretend as though the tax isn't on the employer even though they're the ones that have to charge for it but rather the taxes on the purchase that the purchaser the people purchasing the goods and service now if from an economic standpoint you can argue who the tax is on because of course again the employers the one has to increase their their sales price and collect the tax and what not but that's the general idea so what's going to happen then as we make sales we're going to be increasing the liability accounts as we have seen as we've been entering the sales forms throughout our practice problem here are the liability accounts for the sales tax that we owe so the general idea would be that if I hit the plus button up top whenever we sell something with an invoice form or sales form those are the sales forms meaning if you use some other form like a bank deposit that might cause problems within the calculation of the sales tax because they're going to be calculated with the sales forms of the invoice and the sales receipts when we enter those we're going to be charging sales tax the sales tax isn't going to go to an income account even though we're charging for it and collecting on it but rather to a liability account so let's give a quick recap of the setup process for the sales tax there's basically three things that need to happen to get the sales tax up and running and we're looking from the United States standpoint here one you got to basically get the sales tax turned on and then two you need to determine which items are going to be assigned sales tax using your inventory items in service items and then three if there are any customers that are exempt from sales tax even though the item if it was sold to a different customer would be subject to sales tax you can then adjust the customers to deal with with that scenario so let's quick recap first tab let's go down and say the sales tax was set up down here in the taxes area we have the first tab being the sales tax so within the sales tax tab we based it on our location if you only have one store location the sales tax is fairly easy because QuickBooks can determine the address of the store and help you hopefully to set up the sales tax charging the proper rates if you're in an online type of situation you sell on Amazon or you sell on Shopify or things like that it gets a lot more complicated both in terms of the question of who is responsible for the sales tax for example Amazon might be the one that has to carry the burden of charging sales tax in certain situations whereas if it's your website like a Shopify store you might have to do more of the work on making sure that you're in compliance with the sales tax yourself so we have to keep those types of things in mind we're not going to go into that in detail here that could they can have a whole nother course on sales tax if you if it's going across state lines and whatnot but we have a course on on Shopify store recording in general and in a future course or section if you want to look at that in more detail but any case once we set up the sales tax we have our screen here we could set basically the default taxing we have the sales tax setting if I go into the sales tax setting you'll recall that we have our agencies up top these are the people that we're going to pay the money to because they forced us to collect on their behalf and then we have the this was the custom rate for the generic problem that we put together down below remembering in the in the United States there's a federal income tax that's the major way that the federal government gets paid in order to do their job of protecting in the military and that kind of thing although they spend the money on all other kinds of crazy stuff but and then on the state side of things the states decide how they're going to collect taxes which often includes a sales tax system so that's why it's a state and you might have a local state and local sales tax that will add up and you can have one charge but you might be paying two different agencies for the one charge okay so we set that up and then will be we have the sales tax we got the economic nexus which can help you with the tax laws we have the reports drop down you can also find these reports in the report center but it's probably easier to see them here and then you've got your tax accumulating per location so for us we set up the default 5% to Alabama and Colorado here just randomly picking those two and then you have the statuses of all paid do overdue or open and the amount and the status is open here and then you have the tax year the current year that we are on and then the details on down below now if you're using the sales tax so that's that's the sales tax center if I open this up we then went into our sales tab and we went into our products and services and in our case we're saying that all of the actual inventory items are subject to sales tax as you can see here and we're saying that the service items are not subject to sales tax therefore when I populate an invoice or sales receipt that has an inventory item it will charge the sales tax based on location unless we say the customer is for some reason exempt from the sales tax and anything that's a that's this type of item like a service item will not be subject to the sales tax and the last step was to go into the customers which you don't normally need to do unless a customer is special for some reason and would be exempt from sales tax or possibly have a different sales tax location then would be the default sales tax setting typically driven by the sales tax setup and by the items all right so that's been set up now if I go into say the balance sheet and I was to drill down on one of these accounts going into it we can see that their increase in the liability is increasing with invoices and sales receipts if I go into those forms these are the these are the sales forms that we have we can see the detail of the of the calculation so you'll recall that when we enter an invoice it increases the accounts payable by the total amount and then the revenue goes up by this amount the amount that we charged and the sales tax increases the payable account by whatever the sales tax is in this case 170 250 remember that you could imagine a system you might be thinking why doesn't why if we're going to collect 3620 250 I should record that as revenue and then record and a business expense of sales tax and that system would still result in the same net income and it's a question that will inevitably come up if you're a bookkeeper because the client is going to say hey look why don't I have something on my tax return if you're in the United States for sales tax expense because I'm spending all this money on sales tax and the the answer to that question is if you're using this system that's because we didn't record the revenue on on the income statement either neither the revenue or the expenses on the income statement we put it into a payable because the concept is that the government is saying we're not actually taxing you business owner we're taxing the client we're just using you as the collection agency again you can argue whether or not that is true from an economic standpoint given the fact that we as the business have to basically increase our sales price it looks to me kind of like we have we have a sales going up and a business expense of the sales tax for basically protection money that we're paying to the government so that we could pay for the cops so they can actually stop the people that keep looting our stores and stuff but but no that's not how it works so really we're charging the customer and therefore apparently the cops don't have to stop people from looting the stores or something or whatever but so then let's close this let's close this out and let's go back to our report here so so then if you collect the sales tax from just a logistic standpoint now now we have we have this money that that we collected from the customer and of course we have to pay it to the government and the question is well how often do I have to pay it to the government which will hopefully be set up within the widget depending on the location as you set up your your tax information but usually what will happen is if you get a lot of sales the state or locale will want their money sooner so you might have to pay it more regularly and if if however you have don't have many sales then possibly the state's gonna go okay we don't really care because you're not making much money anyway so maybe you just pay it once a year for us we said we're gonna pay it monthly for the practice problem so what does that mean that means that we're collecting money for January so we're gonna imagine January we collected our our our sales tax and then I'm in the payroll tax the sales tax is up here we've packed we collected the sales tax and then in February we also collected sales tax but we're gonna pay off just the January sales tax and and then the February sales tax will be paid off in March so there's gonna be a month lag of the sales tax we collect the sales tax from customers using the sales forms the the invoice and sales receipts and then we pay off the liability that has been accumulating in the following month for the prior month as the current month keeps accumulating with the current month sales documents invoices and sales receipts all right so let's go to the first tab and back into our our tax over here now normally you would do that with like a widget in your sales tax and QuickBooks would make basically another type of form that would be another kind of expense a check form decreasing the checking account but specific to the sales tax but because we're using a practice problem here we can't really do that because because you have to run in real time for QuickBooks to basically calculate the tax that is owed so we're just gonna do a manual check or yeah manual check here or an expense form but in practice of course you'd want to use the little widget as the time passes when your tax is due you can run the reports down here we have a tax liability report tax customer report non-taxable transaction review so clearly when you're looking at the liability you want to possibly run the liability report so we can determine how much to be paying taxable taxable customer report will give give the you know the tax the revenue possibly for the the customers that are taxable and then the non-taxable transaction review might help you to determine the revenues that are non-taxable and this might be information necessary to fill out the the tax forms because what will happen typically with with most of the tax situations is you're gonna want to pay as you go so you pay the sales tax and then you have to have a summary form similar to the income tax in which case we basically pay during the year and then we file a form 1040 the difference with the income tax is that you can't get it perfect because the tax is too complex therefore we shoot for an overpayment and then we try to get a small refund when we file the forms whereas with payroll tax and sales tax we should be able to get it exact because we're just paying what we collected and then we might have a review tax form that we have to provide depending on the state and locale that summarizes how we calculated the taxes so let's say we do a tax liability report here and if if I go from 010124 to 013124 we can run this report and now we have the taxes by the locale and this is this is going to be the the two taxes for Alabama and Colorado one eight seven five and four sixty eight that should be what's on the balance sheet over here one eight seven five and four sixty eight for the end of January not including February because February we're not going to be paying until March all right so that's the idea so then we can run we can basically just write a check for it so I'm gonna just write a check and so let's do this and I'm gonna make it a generic check even though I have the two locales here I'm just gonna make it a generic check so let's go up top and say we're gonna say we're gonna do a check form you can also do an expense form check form here but in practice you would use like the widget and I'm gonna say it's gonna be the the city let's say city of California I'm just gonna make a generic one for our vendor so we're paying the city for this one I'm gonna say save and I'm trying to do this so it matches also our bank reconciliation reports that we will do in a future course or section so 022823 or 24 I'm gonna do it at the end of February check number is correct so I'm gonna keep that check number and then in the category down below I'm gonna put this into the you know I'm gonna make a new account just so we can see just so we can see it so I'm gonna add I'm gonna add an account and I'm gonna call it I'm gonna say this is gonna be an other current liability and I'm gonna say it's gonna be payroll sales tax sales tax payable adjustment I'll just show it like that and then I could make it a subcat no I won't make it a subcategory and so let's save that and then I'm gonna make the payment in two amounts one being one eight seven five point oh nine why because I don't think that's the amount that was charged here was it and the sales tax and the two let me just check it out one okay yeah that ties out to one eight seven five oh eight so I'm gonna imagine that we're paying the Alabama Department first and then we have to pay separately the Colorado but I'm gonna imagine in our problem they were California taxes for the state and then the locality and and so that's gonna be the the general idea so let's go back on over and maybe I can make this well that's good so let's do a save and new on that one this is gonna decrease the checking account the other side going into that sales tax payable and let's do the other one save and new now the other one I'm gonna imagine goes to the state of California I tried to do one state and one local what happened here so maybe I should this should be local local sales tax I'm kind of this is getting a little messy but I'm gonna say state and local so I'm gonna say it's going check-in account 228 the check number is good and then down here once again I'm gonna put this as my sales tax payable adjustment account and this one is gonna be for the 468.77 which would the idea here being it's going to the other department imagining that we had to pay two departments that we broke out and charged as one sales tax line on the invoices and sales receipts but they're actually for two different departments possibly at a state local and a local level that we have to actually pay out that's why we have these two lines here so let's go ahead and I'm gonna save and close that and this should decrease the check-in account other side going into the sales tax I'm gonna close that and then I go into the balance sheet and let's check it out so if I run this we can see down here and the sales tax that so so now we have so I put the sales tax down here and so it's a little bit out of sync with where the other sales tax is let me do some sub accounts and see if we can clean this up a bit I'll make a parent account called sales tax and then I'll put these underneath it so it'll look a little cleaner let's go to the first tab let's clean this up a bit we're gonna go into the into the transactions and chart of accounts let's make a new account and just call it a liability account I'm gonna say it's gonna be a liability other current liability and then it's gonna be sales tax payable and I'm just gonna call this sales tax payable and then boom that's the parent account and then I'll find the other accounts that are sales tax and put them under the new parent account so I'm looking for the other current liabilities so due to the assets other current liabilities so here's Alabama I think you should go back to Greenbow Alabama let's edit that force gum right there I don't know what I'm talking about in case we're gonna say this is gonna be other current and then this is gonna instead go into the sales tax payable sales tax payable account boom alright so now it's a subsidiary account you can't change delete this account because it tracks sales tax okay I was afraid it might do that you would think it would still let me put it under a sales tax accounts let's close this out and check it out again so what do we have here other current liabilities and then the sales tax so let's try putting the new account then us make it a subcategory of the Alabama account and that I'll clean it up a little bit so let's go to the new sales tax account we set up so it's gonna be other current liability and we have to do other current liability sales tax here's the well here's the adjustment account let's let's take that adjustment account and edit it and put it under one of the make it subsidiary see if it lets me do that to Alabama Department of Revenue how about that and then we'll save that one and say yes okay that it allows me to do so I'll clean it up a little bit hopefully so I'm gonna run this again on the balance sheet it would kind of be nice if they let me have a you would think you'd have a parent account of the sales tax if you had multiple locations but in any case now we've got this this is our sales tax and then this account I put in another account because we did it in kind of a generic format not using the widget because time has not passed so I put it into this second account you could see what happens here is is in January we have that the total sales tax that was owed and then of course we pay it in February and then and then in February the sales tax keeps on accumulating upwards and then this is the other sales tax that we had to pay for the 5 79 imagining these are representing the state and local although we chose two whole different departments and basically our practice problem so basically the idea would be at this point in time did it we're gonna say that this one eight seven five point oh eight plus this four sixty eight point point seven seven point seven seven is the sales tax that was accrued in January which we paid in February and then this two three one eight point oh four or we can do it this way this this 25 20 this is a negative 25 let's do it this way this five seventy nine point five one minus twenty five point eight two that's five foot five three sixty nine is the sales tax which accrued so far and we've done the whole month of February which we would pay in March so if I go back to my reports on this side and open up our transactions and look at my taxes for taxes tab and then we go into the sales tax if I open up my liability report and I run it for oh oh two oh one two four to oh two twenty eight to four and run it so now we have the four four two ninety six and the one one zero seventy four four let's say four four two point nine six plus one one oh point seven four that's the five five three seventy okay so that's the general idea of the sales tax remembering that in practice we would want to pay it you know with the widget so if I go into the the checking account up top then if I if I scroll down we paid the sales tax but we paid it with just normal check forms so these are the two it's a check form if we paid it with the widget then we'd have the special another name kind of like this bill payment but it would be a special one to indicate that it was sales tax that was paid all right let's go back that is it so this is where we stand as of this point in time on the balance sheet income statement nothing new happening to the income statement because the sales tax is off income statement in general both when we record it when using sales forms sales receipts and invoices and when we pay it with a check form or some kind of sales tax payment form which is just a special check form let's go to the trial balance this is where we stand if your numbers tie out here that's great if not try adjusting the dates see if it's a date range issue assets liabilities equity income and expenses the order starting with the assets checking account counts receivable inventory investments payments to deposit prepaid insurance furniture and fixture accumulated depreciation contra asset related to the furniture and fixture machinery and equipment that's what the company has who has claimed to those assets the flip side of the coin liabilities and equity starting with liabilities the accounts payable the visa the sales tax the government and then we have the bank with the loan payable we have the payroll taxes the government and then we've got unearned revenue if we collected a deposit for example that we owe back or we owe work and then we have claim and the form of equity starting with the owner investment similar to common stock if it were a corporation we have the owners equity similar to retained earnings if a corporation and then the income statement giving us detail about the last year of operations income minus expenses income credits expenses debits credits of income minus debits of expenses would give us a credit balance if we have income instead of a loss and that would be net income which would then be part of and roll into equity or retained earnings if it was a corporation and QuickBooks does that itself if we change the range 0101 to 5 to 0101 to 5 because QuickBooks does it on an annual basis