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 Tax Adjustment for Payment Transactions Locate this document in the navigation structure

If you want tax on sales/purchases to be adjusted automatically for cash discount postings when payments are cleared, you must make an entry in the Tax category field for the accounts for cash discount received and cash discount paid.

If you do not want tax on sales/purchases to be adjusted automatically, do not make an entry in the Tax category field for the cash discount accounts. Tax adjustment is not necessary in Italy, for example. Note that the system does not allow tax adjustment to postings made with a jurisdiction code.

Payment transactions can be posted manually or automatically using the payment program. For adjustment postings, the system divides the calculated gross cash discount amount into net cash discount amount and tax portion. It needs a tax code to do this.

The following scenarios can be distinguished:

Case 1: The whole document contains one tax code only.

Customer/vendor line item

V1

G/L account line item 1

V1

G/L account line item 2

V1

When the payment transaction is posted, the system uses tax code V1 to calculate the tax amount for the cash discount amount. It then automatically adjusts the tax on sales/purchases amount previously posted to the tax account.

Case 2: The document contains different tax rates. A tax code has been entered in the customer/vendor line item.

Customer/vendor line item

V1

G/L account line item 1

V2

G/L account line item 2

V3

In this case, the system corrects the tax on sales/purchases amount per tax on sales/purchases code. Line items that are not liable for cash discount are ignored when the adjustment posting is made. When the payment transaction is posted, the system uses the tax code in the customer/vendor line item to make the adjustment. As above, the tax on sales/purchases amounts already posted to the tax accounts are automatically adjusted per tax on sales/purchases code.

Case 3: The document contains different tax rates. A "**" is entered in the customer/vendor line item in place of a tax code.

Customer/vendor line item

**

G/L account line item 1

V1

G/L account line item 2

V2

If the customer/vendor line item does not contain a code, the codes from the G/L account line items are used. The system calculates the tax amount for the cash discount amount for each tax code. As above, the tax on sales/purchases amounts already posted to the tax accounts are automatically adjusted per tax on sales/purchases code.

Example Example

You have posted an outgoing invoice for USD 3,370 (see the following figure, 1 ). The tax amount (USD 370) was posted automatically to the tax account.

The customer pays the invoice amount of USD 3,370 minus three percent cash discount, that is, USD 3,268.90 (see the following figure, 2 ). The invoice contained one line item for USD 2,000 with 15 percent tax (A1) and an item of USD 1,000 with 7 percent tax (A2). When posting the payment transaction, the system determines (per code) the net cash discount amount and the tax amount. From these tax amounts, the system automatically makes an adjustment posting to the tax accounts.

End of the example.

The system posts the following amounts during the payment transaction:

 ( )