Choosing Account Codes for Tax Amounts

When the automatic tax calculation facility is used and a tax code is entered on a transaction in Ledger Entry (LEN), the tax portion of the transaction amount is calculated automatically using the tax details defined for the tax code in Tax Details (TXD).

You can identify the ledger accounts to which the tax portion of the transaction is to be posted using Tax Details (TXD). Two types of account can be identified: input tax accounts and output tax accounts.

The use of the input/output account is determined by the setting in the Tax Type field in Journal Types (JNT). If this field is set to Input, then the input tax accounts are used for that journal type. If this field is set to Output, then the output tax accounts are used for that journal type.

The tax portion of a generated settlement discount amount on creditor/payables accounts, and on purchase (credit) transactions on client accounts, is also written to the Input Tax Account Code 1. If the tax is to be spread over two accounts, the tax portion is also written to the Input Tax Account Code 2.

The tax portion of a generated settlement discount amount on debtor/receivables accounts, and on sales (debit) transactions on client accounts, is written to the Output Tax Account Code 1. If the tax is to be spread over two accounts, the tax portion is also written to the Output Tax Account Code 2.

The tax values and corresponding gross and net values can be reported using Tax Reporting (TXR).

Posting Tax to the Same Account as the Line that Generates the Tax Calculation

If you want the automatically calculated tax to be posted to the same account as that on the journal line that generates the tax for a certain tax code, this can be configured as follows:

  1. On the Automatic Tax tab of Journal Types (JNT), set the Automatic Tax Calculation to Yes. On the same tab, set the appropriate options for Calculate Tax From. For example, if you want to use this journal type to automatically generate tax on an expense account line, set the Profit and Loss option to Net.
  2. In Analysis Codes (ANC) create the code in your Tax or VAT Analysis Dimension as appropriate.
  3. In Tax Details (TXD), create the same tax code as in Step 2. In the Tax tab, specify '**********' (ten asterisks) in Account Code 1, and leave the percentage as 0.00%.

When you enter the ten asterisks instead of a specific account code, you are configuring the tax code to use whatever account is entered on the journal line generating the tax calculation. For example, use this configuration to post the tax calculated on an expense line to the same expense account. This works both for input tax and output tax.