Sales Tax Adjustments: Process Activity

The following activity will walk you through the process of creating a tax adjustment to a tax report.

Story

Suppose that the chief accountant of SweetLife Fruits & Jams has found out that the Candyy Cafe company was liquidated and has become unable to pay the $167.87 invoice dated February 13, 2024. The managers of SweetLife have decided to write off this invoice as uncollectible.

After the bad debt expense is reported, you need to make a tax adjustment to deduct the tax on this invoice from the prepared tax report.

Configuration Overview

In the U100 dataset, the following tasks have been performed for the purposes of this activity:

  • On the Tax Categories (TX205500) form, the TAXABLE tax category has been configured.
  • On the Tax Zones (TX206000) form, the NYSTATE tax zone has been configured.
  • On the Taxes (TX205000) form, the NY State Tax has been configured and assigned to the TAXABLE category and the NYSTATE tax zone.
  • On the Vendors (AP303000) form, the NYTAXDEP vendor has been configured as a tax agency.
  • On the Reporting Settings (TX205100) form, a tax report has been configured for the NYTAXDEP tax agency.
  • On the Customers (AR303000) form, the CANDYY customer account has been configured, and the Enable Write-Offs check box has been selected for the customer on the Financial tab of this form.
  • On the Invoices and Memos (AR301000) form, the AR invoice to the CANDYY customer in the amount of $167.87 has been created and processed.

As a prerequisite to this activity, a tax report has been prepared, but not released, as described in Tax Report Preparation: Process Activity.

Process Overview

As you complete this activity, you will first specify the predefined numbering sequence for tax adjustments on the Tax Preferences (TX103000) form. You will then write off the customer's bad debt on the Write Off Balances and Credits (AR505000) form and review the transaction generated by the system on the Journal Transactions (GL301000) form. On the Tax Adjustments (TX301000) form, you will create a tax adjustment of the Adjust Output type to reduce the amount of taxes owed to the tax agency. Finally, you will review the GL transaction generated by the system on the Journal Transactions form.

System Preparation

Before you begin to create a tax adjustment, do the following:

  1. Launch the MYOB Acumatica website with the U100 dataset preloaded, and sign in as a system administrator Kimberly Gibbs by using the gibbs username and the 123 password.
  2. On the Company and Branch Selection menu on the top pane of the MYOB Acumatica screen, make sure that the SweetLife Head Office and Wholesale Center branch is selected. If it is not selected, click the Company and Branch Selection menu button to view the list of branches that you have access to, and then click SweetLife Head Office and Wholesale Center.
  3. As a prerequisite activity, prepare a tax report, as described in Voiding of a Sales Tax Report: Process Activity.

Step 1: Updating Tax Preferences

To specify the numbering sequence for tax adjustments, do the following:

  1. Open the Tax Preferences (TX103000) form.
  2. In the Tax Adjustment Numbering Sequence box, select TXADJUST.
  3. On the form toolbar, click Save to save your changes.

Step 2: Writing Off the Bad Debt

To create a balance write-off, proceed as follows:

  1. Sign in to the company with the U100 dataset 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, make sure that the business date in your system is set to 2/29/2024. If a different date is displayed, click the Business Date menu button and select 2/29/2024. For simplicity, in this process activity, you will create and process all documents in the system on this business date.
  3. Open the Write Off Balances and Credits (AR505000) form.
  4. In the Summary area of the form, specify the following settings:
    • Type: Balance WO
    • Doc. Date: 2/29/2024 (inserted by default)
    • Company/Branch: HEADOFFICE (inserted by default)
    • Post Period: 02-2024 (inserted by default)
    • Customer: CANDYY
    • Reason Code: BALWOFF
    • Limit: 200

    The invoice whose amount you have to write off appears in the table. Notice the reference number of the invoice; you will need it later.

  5. Select the unlabeled check box in the row for the invoice with the 167.87 amount, and on the form toolbar, click Process.

    The Processing dialog box opens and the system processes the write-off and creates a Balance WO document.

  6. After processing has been completed, in the Processing dialog box, click Close to close the dialog box.
  7. Open the Payments and Applications (AR302000) form, and in the Type box, select Balance WO.
  8. In the Reference Nbr. box, select the write-off document in the amount of $167.87 that you created earlier.
  9. On the Financial tab, click the link in the Batch Nbr. box, and review the generated transaction on the Journal Transactions (GL301000) form, which opens.

    On release of the balance write-off:

    • The write-off account specified for the reason code (81010) is debited in the amount of outstanding balance of the invoice to record the write-off expense.
    • The AR account (11000) is credited in the amount of the open balance of the invoice to decrease the accounts receivable balance.

Step 3: Creating a Tax Adjustment to the Tax Report

To create a tax adjustment to the tax report, proceed as follows:

  1. Open the Tax Adjustments (TX301000) form.
    Tip: To open the form for creating a new record, type the form ID in the Search box, and on the Search form, point at the form title and click New right of the title.
  2. On the form toolbar, click Add New Record, and specify the following settings for the tax adjustment:
    • Type: Adjust Output

      This type of tax adjustment applies to taxes of the Output type.

    • Tax Agency: NYTAXDEP
    • Tax Period: 02-2024 (inserted automatically)
    • Date: 2/29/2024 (inserted automatically)
    • Description: 02-2024 adjusted (bad debt tax deduction)
  3. On the Details tab, click Add Row, and specify the following settings for two rows:
    Tax ID Taxable Amount Tax Zone Description
    NYSTATETAX -145 NYSTATE Tax adjustment for invoice AR000083 (your invoice number may be different)
    NYNOTAX -10 NYSTATE Tax adjustment for invoice AR000083 (your invoice number may be different)
    Tip: You specify a negative taxable amount to decrease the output tax. To increase the output tax, you specify a positive amount.
  4. On the form toolbar, click Save to save the tax adjustment you created.
  5. On the Financial tab, select 81010 - Bad Debts in the Adjustment Account box.

    By default, the adjustment account is copied from the Expense Account settings specified for the tax agency account on the Vendors (AP303000) form. You override the default value for the account in this particular tax adjustment to record the amounts to the bad debt deduction account.

  6. In the Amount box in the Summary area, enter -12.87.
  7. On the form toolbar, click Remove Hold, then click Release to release the tax adjustment.
  8. On the Financial tab, click the link in the Batch Nbr. box to review the transaction generated by the tax adjustment on the Journal Transactions (GL301000) form, which opens.

    The transaction updates accounts as follows:

    • The adjustment account (81010) specified in the tax adjustment document is credited in the amount of the adjustment to decrease the bad debt expense.
    • The Tax Payable account (24100) of the specified tax is debited in the amount of the adjustments to decrease the tax amounts to be paid to the agency.

Step 4: Reviewing the Updated Tax Report

To review the updated tax report, proceed as follows:

  1. Open the Release Tax Report (TX502000) form.
  2. In the Summary area, specify the following settings:
    • Company: SWEETLIFE (inserted by default)
    • Tax Agency: NYTAXDEP
    • Tax Period: 02-2024 (inserted by default)
  3. Review the tax report. Notice that the tax report was updated automatically, so that you did not need to void and regenerate it. Also notice the following updates:
    • Taxable sales have decreased by $145.
    • Exempt sales have decreased by $10.
    • Gross sales have decreased by $155 ($145 + $10).
    • The tax total has decreased by $12.87.
  4. Click the link in the Tax Total report line, and on the Tax Report Details (TX502010) form, which opens, review the documents listed in the table. Make sure the written-off invoice and the related tax adjustment are displayed in the list.