VAT for Early Payments: To Process a Payment with a Cash Discount

The following activity will walk you through the process of adjusting VAT for AR invoices paid within the cash discount period.

Story

Suppose that SweetLife Fruits & Jams provided four hours of training to Lake Cafe on January 15, 2024. On 1/17/2024, Lake Cafe paid the invoice in full and received a cash discount. Acting as a SweetLife accountant, you need to record an AR invoice, process a payment with a cash discount, and generate a VAT credit memo.

Configuration Overview

In the U100 dataset, the following configuration tasks have been performed to prepare the system for this activity to be performed:

  • On the Enable/Disable Features (CS100000) form, the VAT Reporting feature has been enabled.
  • On the Tax Categories (TX205500) form, the TAXABLE tax category has been configured.
  • On the Vendors (AP303000) form, the LAKECAFE vendor account has been configured.
  • On the Non-Stock Items (IN202000) form, the TRAINING non-stock item has been configured.
  • On the Credit Terms (CS206500) form, the 310N30 credit terms have been configured.

Process Overview

In this activity, you will first update the settings of the VAT tax on the Taxes (TX205000) form and the review the settings of the TAXABLE tax category on the Tax Categories (TX205500) form. You will update the settings of the LAKECAFE customer on the Customers (AR303000) form and AR preferences on the Accounts Receivable Preferences (AR101000) form. On the Companies (CS101500) form, you will update the settings of the SWEETLIFE company. On the Invoices and Memos (AR301000) form, you will create an AR invoice for the customer, with VAT applied to the invoice. On the Payments and Applications (AR302000) for, you will create a payment for this invoice with a cash discount taken by the customer. On the Generate AR Tax Adjustments (AR504500) form, you will create a VAT credit memo to adjust the amount of the output VAT.

System Preparation

To prepare the system, do the following:

  1. Launch the MYOB Acumatica website, and sign in to a company with the U100 dataset preloaded. You should sign in as an accountant by using the johnson username and the 123 password.
  2. In the info area, in the upper-right corner of the top pane of the MYOB Acumatica screen, set the business date in your system to 1/15/2024.
  3. On the Company and Branch Selection menu, on the top pane of the MYOB Acumatica screen, select the SweetLife Head Office and Wholesale Center branch.
  4. As a prerequisite activity, in the company to which you are signed in, be sure you have configured the VATTAX tax agency as described in Tax Agency: To Set Up a Tax Agency for VAT.
  5. As a prerequisite activity, be sure that you have created the CANADA tax zone on the Tax Zones (TX206000) form as described in Tax Zones and Categories: To Create a Tax Category and Tax Zone for VAT.
  6. As a prerequisite activity, be sure you have configured VAT on the Taxes (TX205000) form as described in Value-Added Taxes: To Create a General VAT and Exempt VAT.

Step 1: Updating the Settings of VAT

To update the settings of the VAT, do the following:

  1. Open the Taxes (TX205000) form.
  2. In the Tax ID box, select VAT.
  3. In the Cash Discount box, select Reduces Taxable Amount on Early Payment.
  4. On the form toolbar, click Save.

Step 2: Reviewing the Tax Category

To review the settings of the TAXABLE tax category, do the following:

  1. Open the Tax Categories (TX205500) form.
  2. In the Tax Category ID box, select TAXABLE.
  3. In the table, make sure that VAT is selected in the Tax ID column.

Step 3: Updating the Customer's Settings

To update the customer's settings, do the following:

  1. Open the Customers (AR303000) form.
  2. In the Customer ID box, select LAKECAFE.
  3. On the Financial tab, select 310N30 in the Terms box.
  4. On the Shipping tab, select CANADA in the Tax Zone box.
  5. On the form toolbar, click Save.

Step 4: Updating the Accounts Receivable Preferences

To update the accounts receivable preferences, do the following:

  1. Open the Accounts Receivable Preferences (AR101000) form.
  2. On the General tab (VAT Recalculation Settings section), specify the following settings:
    • Automatically Release Tax Adjustments: Selected

      If this check box is selected, all generated credit memos will be released automatically.

    • Tax Adjustment Description: Tax adjusted for early payment

      This description will be specified in the credit memos generated for adjusting taxes on early payments.

  3. On the form toolbar, click Save.

Step 5: Updating the Company Settings

To make the system apply cash discounts to the total amount of documents, you need to update the company settings. To update the settings of SWEETLIFE, do the following:

  1. On the Companies (CS101500) form, open the SWEETLIFE company.
  2. On the Company Details tab, select Document Amount in the Cash Discount Base box.
  3. On the form toolbar, click Save.

Step 6: Creating an AR Invoice

To create an AR invoice, do the following:

  1. On the Invoices and Memos (AR301000) form, create a new record.
  2. In the Summary area, specify the following settings:
    • Type: Invoice
    • Customer: LAKECAFE
    • Date: 1/15/2024 (inserted by default)
    • Description: Training (4 hours)
  3. On the table toolbar of the Details tab, click Add Row and specify the following settings for the added row:
    • Branch: HEADOFFICE
    • Inventory ID: TRAINING
    • Quantity: 4
    • Unit Price: 175
    • Tax Category: TAXABLE
  4. Review the Taxes tab. The tax is applied to the full Detail Total amount. That is, the taxable amount of the invoice is $700, and the calculated tax is $49.
  5. Go to the Financial tab and review the Cash Discount Info section. If the invoice is paid within the cash discount period (10 days), the discounted taxable total for the document will be $679. The tax calculated on this amount is $47.53. The document total with taxes will be $726.53.
  6. On the form toolbar, click Remove Hold and click Release to release the invoice.
  7. On the Financial tab, click the Batch Nbr. link and review the generated GL transaction on the Journal Transactions (GL301000) form. On release of the AR invoice, the system generated the following entries:
    • The Accounts Receivable account of the customer (11000) is debited in the total amount of the invoice (the total of all lines plus the total of the calculated taxes).
    • The Sales account of the non-stock item (40000) is credited in the amount specified in the document line.
    • The Tax Payable account (24100) is credited in the calculated tax amount.

      Notice that the tax amount to be paid to the tax agency is calculated based on the undiscounted price of the services because the company's accountant does not know whether the discount will be taken on this particular invoice.

Step 7: Creating a Payment for the Invoice

To create an AR payment for the invoice within the cash discount period, do the following:

  1. While you are still on the Invoices and Memos (AR301000) form with the invoice opened, on the form toolbar, click Pay.
  2. The system creates a payment and opens it on the Payments and Applications (AR302000) form.
  3. In the Summary area, specify the following settings:
    • Application Date: 1/17/2024
    • Description: Payment with discount
  4. On the Documents to Apply tab, notice that the system has applied the invoice with the following settings:
    • Doc. Type: Invoice
    • Reference Nbr.: The reference number of the invoice that you created in Step 5

    The payment is within the cash discount period, so the Cash Discount Taken column shows the cash discount amount that will be taken by the customer for this invoice ($22.47).

  5. On the form toolbar, click Remove Hold and click Release to release the payment.
  6. In the table on the Application History tab, click the column header of the first column to open the Column Configuration dialog box. In the dialog box, add the Subject to Tax Adjustment and Tax Adjustment columns to the Selected Columns list, and click OK.
  7. Review the only line in the table. The selected check box in the Subject to Tax Adjustment column means that the invoice specified in this line is subject to VAT adjustment, but the credit memo has not yet been generated for the invoice, so the Tax Adjustment column is empty.
  8. Click the link in the Batch Number column and review the generated GL transaction on the Journal Transactions (GL301000) form, which opens.

    On release of the payment, the system generated the following entries:

    • The Checking account of the company (10200) is debited in the amount of the payment received from the customer.
    • The Accounts Receivable account of the customer (11000) is credited in the payment amount (the invoice total minus the discount given). The customer balance will be decreased in the discount amount later, when the VAT credit memo is processed.
  9. On the Application History tab of the Payments and Applications form, click the link in the Reference Nbr. column and on the Invoices and Memos (AR301000) form, review the invoice to which the payment has been applied.

    The open balance of the invoice is still $22.47, which is the discount amount taken by the customer. Because the amount of the customer payment for the invoice is less than the full invoice amount, for which the VAT had been calculated and posted, you need to adjust the taxable and tax amounts to reflect the actual payment amount received for the services.

Step 8: Creating a VAT Credit Memo

To create a VAT credit memo, do the following:

  1. Open the Generate AR Tax Adjustments (AR504500) form.
  2. In the Summary area, specify the following settings:
    • Date: 1/31/2024
    • Branch: HEADOFFICE (inserted by default)

    In the table, the system loads the invoice that you created in Step 5.

  3. In the table, select the unlabeled check box in the only row, and on the form toolbar, click Process.
  4. Open the Invoices and Memos (AR301000) form and open the invoice that you created in Step 5.
  5. In the Summary area, review the invoice balance and on the Applications tab, review the list of documents applied to the invoice. The invoice balance is now $0. The adjusting credit memo in the amount of $22.47 was automatically applied to the invoice and closed, because the Automatically Release Tax Adjustments check box is selected on the Accounts Receivable Preferences (AR101000) form.
  6. In the Type box of the Summary area, select Credit Memo and open the adjusting credit memo.
  7. Review the credit memo summary and the Financial tab. In the generated credit memo, the VAT Taxable (in the VAT Totals section) is $21, and the tax calculated on this amount is $1.47, which is shown in the Tax Total box of the Summary area. This is the difference between the full tax amount posted on the release of the invoice ($49) and the tax amount calculated on the discounted invoice amount ($47.53), which is shown on the Financial tab of the Invoices and Memos form for the invoice.
  8. On the Financial tab, click the Batch Nbr. link and on the Journal Transactions (GL301000) form, which opens, review the generated GL transaction.

    On release of the credit memo, the system generated the following entries:

    • The Accounts Receivable account of the customer (11000) is credited in the amount of the given discount, to close the invoice.
    • The Cash Discount account (52600) is debited in the discount amount that is calculated on the invoice amount before the taxes are applied ($21 = $700 * 3%).
    • To decrease the accumulated output tax, the Tax Payable account (24100) is debited in the amount of the difference between the full tax amount posted on the release of the invoice and the tax calculated on the discounted amount ($1.47 = $49 – $47.53).
  9. On the Payments and Applications (AR302000) form, open the payment that you have applied to the invoice.
  10. Review the Application History tab. The Tax Adjustment column now shows the reference number of the adjusting credit memo that was generated for the payment application.