QuickBooks Online 2024, sales tax and bank feeds. Get ready and some coffee because we're diving into it with intuits. QuickBooks Online 2024. First, a word from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us.  Like this CPA thinking cap, for example. CPA thinking, CAP, you see what we did 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. Yeah, 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's saying. So get one because the scientific survey participants could really use some extra cash. In our QuickBooks online bank feed practice file we set up in a prior presentation. Opening the major financial statement reports like we do every time. The reports on the left hand side in the favorites. Right click in the balance sheet to open a link in a new tab. Right click the profit and loss otherwise known as the income statement to open a link in a new tab. Right click the trustee trial balance to open a link. If you don't have that trial balance in the favorites, you can search for it. Tabbing to the right. Closing the hamburger and then change the range. 010124 Tab 022924 Tab. Selecting the drop down to the months and then running to refresh it. Let's tab to the right same thing for the profit and loss. Closing the hamburger on the profit and loss. 010124 Tab 022924 Tab. Selecting the drop down months and then run it. And then we'll tab to the right one more time. Closing the hamburger on the trustee trial balance. Running or changing the range<PHONE_NUMBER>24. Selecting the months and then we will run to refresh it again. Alright let's go back to the balance sheet. We're now going to be thinking about sales tax. So as we get into taxes we have to point out that when we're thinking about the double entry accounting system itself the idea of the accounting equation it is a universal concept. So the currencies might change but the concept of entering two accounts with every transaction will be the same. The forms in essence will be the same to do that. But when we get into taxes we have a wrench in the system oftentimes and that will often irritate our accounting process and the taxes of course are laws and those will be specific to location. So what you want to do then for taxes is usually you can get an idea of the different kinds of taxes there are there aren't really any new taxes under the sun. Governments have been taxing since the dawn of civilization so it's just a matter of which tax is being applied in your particular location. So here we're talking about a sales tax which is kind of a usage type of tax and the government is forcing then the business owner to apply the tax. Therefore the business owner is being thought of as not the person receiving the revenue in essence they're just a tax collector and the tax supposedly then is on the customer that is paying the tax and the business owner is just the one that has to facilitate it and collect it. So in the United States our primary federal tax is a federal income tax not a sales tax. But on the state levels and the local levels then we could have other systems because they're free to tax however they want for what they have to do so the state and local level is where the sales tax may be applicable and it will differ then from location to location in the United States and other parts of the world might have federal taxes that are basically a sales type tax, a usage type of tax. So how do we set that up? Well in QuickBooks there's three things that we want to be considering to set up the sales tax typically if we go to the left hand side usually the first thing is that we go to the taxes on the left and we go to the sales tax tab and we add our sales tax into the system we set up the sales tax based on the location and QuickBooks is pretty good at being able to determine what the tax calculation should be if we use the system properly within QuickBooks. Once we have the tax set up then we have to go to the items and we have to actually set up items under the sales tabs and the products and services these are the things that we're actually selling and these are the things that will typically drive QuickBooks to know whether or not and which sales tax should be applied as we enter these items and then lastly it's possible that you have some customers that are not subject to the sales tax even though the thing that they are buying would be subject to sales tax if it were another customer you have a special customer so if you go into the sales tab and then into the customers you could determine that a particular customer is exempt for example from sales tax or if you have multiple sales tax set up you can have the customer assigned to which sales tax you think is appropriate for that customer generally based on location when we're talking about United States sales tax so that's the general overview next question well how do bank feeds fit into the sales tax well the bank feeds are going to if I go to my flow chart the desktop flow chart we're looking for online purposes and we're looking at the revenue cycle here just to consider the cycle now you will recall that the easiest process to use will be one where we just wait till sales clear the bank and then just use the deposit form to record the revenue now that typically would be used if you have gig work like you got paid by YouTube or something now in the United States if you got paid by YouTube or something like that then you're typically not subject to sales tax you will be subject to the income tax and therefore the sales tax won't be an issue and you can do that easy kind of method but what if you're at a cash register kind of situation possibly and instead of actually recording the transactions as you're at the register you're just making the transactions depositing them into the bank and then waiting till they clear the bank and you would like to record the revenue as they clear the bank in the form of deposits that becomes a problem if you're subject to sales tax why? because the deposit form isn't designed to calculate the sales tax the form designed to calculate the sales tax is the sales receipt if it's a form at the point of sale and the invoices if you had to invoice and then collect tracking accounts receivable so that's where the issue is so if you're using the sales receipts and the invoices then you're doing a full service system you can turn on the sales tax QuickBooks will help you calculate the sales tax but typically you're going to record the sales tax and then possibly record the deposit and then most likely within QuickBooks QuickBooks will be the bank feeds will be used to match rather than record the actual deposit if you have a system where you want to wait till it clears the bank then you could work around the sales tax by basically including the sales tax and the sales price and then and just not use the sales receipt forms or the invoices but rather calculate the sales tax kind of more on a manual basis so let me show you a couple of those methods so let's set up the sales tax let's pretend we're going to set up the sales tax and so I'm going to go into the sales tax here it says automatically calculate sales tax rate for each sale number one create an invoice or receipt number two we calculate the sales tax rate based on the date, location, type of product or service and customer three we keep your sales tax updated when laws change alright so I'm going to use the automated sales tax we found more accurate address for your business so we use your physical business address to calculate your sales tax and to determine your main tax agency so if our store was at this location your location might differ from this but it's going to calculate the sales tax based on the location now if you have online stores it gets confusing because now you're selling stuff to multiple states right and then and so you have to dig into the sales tax a little bit more in depth oftentimes in that case you might be working with like an Amazon or something in which case you have to determine if Amazon is responsible for calculating the sales tax or yourself who's going to be dealing with it there if you have a Shopify store for example it's on you typically so you're going to have to figure out how to deal with sales tax in that kind of situation but we'll do an easy situation where we have one location so it's easy to determine the sales tax by location so you have to pay sales tax agencies based on your business address you have to pay sales tax to these tax agencies tell us how often you file so we can track your deadlines and how much you owe so sales tax by location it will depend on who you owe the sales tax to but typically what will happen is you're going to make sales you're going to collect the sales tax and then the question is how often do you have to pay the sales tax to the tax agency and that might happen usually monthly or it might happen quarterly or it might happen on a yearly basis and it's usually will be partly dependent upon how much sales tax you collect if you have higher revenue higher sales tax then they're probably going to want their money more often but I'm just going to say monthly for the purposes of our practice problem next you have registered for sales tax in any other state I'm going to say no I have not registered for sales tax in any other state to keep it simple here are the tax agencies will set up for you so in our case based on the address set it up for California department of tax and fee administration if that doesn't sound like a draconian bureaucratic agency I don't know what does right California I'm scared they're going to come after me some bureaucrats going to drill me into the ground with these tax success automatic sales taxes ready to go you can now see how much you oh check when you have to file track your sales taxes great let's take a look at it so this is what we have thus far so now when I go into the taxes on the left sales tax this is what I see so we have the sales tax settings by going to the sales tax settings then we can turn off the sales tax we can add an agency if we need to and then we have the agency the filing requirement the start date and so on we have the edit down below and then we could add rates if we needed to down below as well I'm going to go back and so then we have the economic nexus this can give you information about sales tax can help you do some research for the sales tax this gives you a drop down of the different locations we only have the one that we have to deal with and then down below we've got the information for possibly how much we need to pay on the sales tax right so we have the status we've got the tax period date and then we have the reports liability report taxable customer report non taxable transaction review okay so once it's set up then we'd have to go into the items I'm going to hit the hamburger I'm going to go into the sales and go into our products and services so then we have to determine which items are subject to sales tax so that the system knows when I make a sale to apply the sales tax to it now oftentimes in the United States it might be the case that things that have inventory might be more likely subject to sales tax things that don't this is possibly less likely to have sales tax so let's set up an item I'm going to say new let's make it an inventory item and I'm going to say that this is going to be the name inventory item sales tax one inventory item and I'm not going to have an SKU number the category I don't have one I'm not going to add a class the on hand I'm going to put some on hand which will create a journal entry so I'm going to say we have let's say ten of them on hand at this point in time I'm going to say as of the beginning of let's say the beginning of January as of the beginning of January reorder point I'm not going to put one inventory will be the account impacted when we buy the inventory and it will be increased by the ten here that we're putting on hand that it will make a journal entry for description is not that description is just going to be this this is going to be the sales description on the invoices or sales receipts forms let's imagine that we sell them for one hundred and seventy five dollars and sale of product that's the income account that will be affected here's where subject to tax or not let's edit this you could search to help you we're just going to go down here and say this is taxable versus non taxable so I'm going to say tax based on location is set up purchasing this is what will be populated on purchase forms like purchase orders bills expense forms or check forms let's say we purchase it for one hundred dollars so we buy it for a hundred we sell it for one seventy five and then the cost of goods sold is the account that will be impacted when we sell it we're using a perpetual inventory system to track this if you're not using a perpetual inventory system by the way you could just set up like a service or non inventory item and still say it's subject to sales tax okay and then we'll say create and so there it is I said create QuickBooks K-Paw so it did it QuickBooks just needed to think a little bit so there it is you can see here it's taxable now QuickBooks will have done a journal entry to put that on the books for the ten quantity so if I go to the balance sheet I can see an inventory if I drill down on the inventory because I put ten on hand it's going to do a journal entry so you don't typically want to do that the other side is going to opening balance equity so it made this journal entry and then the other side is in opening balance equity if you have anything in opening balance equity that's often an indication that QuickBooks kind of forced a transaction to take place but that's fine for our practice problem purposes let's go to the first tab now so now when I make a sale I'd have to go into I can't wait till it clears the bank because when it clears the bank it'll be a deposit form and so when it gets to the bank feed I'll have a deposit form and there's no area to enter the item on the deposit form so what would have to happen if we're using the sales tax for QuickBooks to calculate it is I would have to use a sales form of an invoice or a sales receipt so even if I have a cashed based system if I want to use QuickBooks full service system to calculate the sales tax I would have to use a sales receipt for example and then I might say this is going to be customer let's say three that we're on okay and by the way in the customer field there's going to be a tax item so this customer is tax exempt if they were tax exempt you can select this here and then give an explanation why the customer would be tax exempt otherwise the customer is typically going to be subject to tax based on the location so I'm going to say okay let's save that one and then let's say this happens on two let's say 16 that's fine and then the payment method I don't really, doesn't matter I'll say cash on the payment method and it's going to I could put it directly into the checking account at this point or I could put it into undeposited funds noting that if we're using the sales receipts then the question is do I want to deposit this directly into the checking account because if I got paid with cash for example I typically wouldn't want to put it directly into the checking account because when it clears the bank fees it's going to have multiple deposits that I need to match up to put in the bank account let me show you so typically we would put it into payments to deposited which used to be called undeposited funds which is like a checking account but it's a holding account and then let's say that we sold one of these items so we're going to sell an inventory item that's subject to sales tax so we sold it for 175 and then we have the sales tax is being applied to it so there's the 175 and the sales tax is being calculated now I'm going to change the sales tax to a generic number which you can do I can say let's see the math right here so then below you can see the calculation if I select the drop down so you can see there's actually three locations California State, California Los Angeles County and then Los Angeles County District and then we can try to overwrite it but it's not letting me do it down here I want to make a generic 5% so that if you're at a different location you could follow along but it will not allow me to give a reason right now which is kind of annoying so I'm going to close this back out and show you another way that you can play with this with a practice problem so I'm going to close this out for here I'm going to leave without saving and then I'm going to go back into my taxes on the left hand side and then in the sales tax I'm going to go into the sales tax and let's go into the sales tax settings and let's see if we can add just a generic 5% so I'm going to say it's going to be a single tax I'm going to say the name I'll just say California sales tax generic you know tax and then I'm going to say the agency California Department of Tax and fees okay and the rate it's just going to be 5% so I'm going to say save so there we have the 5% rate okay and then if I go back so now we have our department let's try to add it again and see if we can get that generic 5% to follow drop down we're going to say sales receipt it was customer number 3 customer number 3 I put it to like the 18th it's going to be a cash payment we will imagine going into the payment to deposit undeposited funds like a clearing account and then it was for inventory that had sales tax to it and then if we calculate it we have the location if I select the drop down I have the generic 5% so I just want to do that in case you're at a different location we can have the same sales tax calculation alright so what happens with this transaction there's actually a lot going on here it's going to be increasing the cash but it's going into the payments to deposit like undeposited funds a clearing account instead of the checking account for 183.75 the other side is going to revenue for 175 the amount that we charged the difference sales tax 875 is not going to hit the income statement it's going to the balance sheet as a liability to the to who we need to pay which is the california department of so on and so forth and then also the inventory is going to be going down by $100 which isn't actually on the sales receipt but no one by the system and the other side is going to be cost of good sold which is the expense so the net impact on net income is the sales price 175 not the 180 to 375 175 minus the cost of good sold 100 that's the net impact on net income let's check it out let's save and close and if I go into the balance sheet we can see that it put it into the payments to deposit to here 183 that's for the full amount including the sales tax that we have to collect the other side goes to the income statement and it went into the revenue the sale of product revenue so if I go into the sale of product revenue we have then the 175 not including the sales tax the difference between the two back on the balance sheet is going to be in the liability account so this is like sales tax payable but they put the vendor in the apartment we need to pay there's the 875 and then there's a decrease to inventory if I go into the inventory it's going to be going down by the 100 that we sold and then back on the profit and loss to cost to good sold is going to be going up net impact on net income sales price minus cost to good sold now you might be asking why isn't sales tax included in revenue and then the expense of the sales tax should be on the income statement instead of it being on the balance sheet and the basic rationale would be because it's not revenue to us and it's not an ordinary business expense to us the the iris is trying to claim that we're just a tax collector the taxes actually on the the purchaser and therefore it shouldn't be revenue and an ordinary business expense but rather off income statement on the balance sheet now you can argue that doesn't always seem to be exactly the case from an economic standpoint because I still basically have to jack up my prices for the sales tax and then pay the sales tax which looks like it's kind of revenue and an expense but I think that's the rationale to put it here on the balance sheet so this would accumulate upwards and then we'd have to pay it at some future point now note that the next is this amount is going to clear the bank and we have to put it in the bank so let's before we do that I'm going to make one more sale and say and say let's say we're going to make another one and I'm going to make another sales receipt and let's say this was for customer customer full let's say just customer two and we'll say this happened on two twenty one and once again we'll say it was a cash sale cash sale it's going to go into the payment to deposit instead of the checking account and let's say that we make it a service item and it was for fifty dollars no sales tax is applicable this is simply going to increase the revenue by fifty the other side going into the payments to deposit because I want to show you how this fits into the bank feeds close that and then if I go to my balance sheet now we have in the payments to deposit if I refresh it run it and then scroll down and so now we have in payments to deposit these two amounts so why is that important because when it clears the bank if I take these two cash payments and put it into the bank as one lump sum the bank and the bank feeds are going to show this amount to two thirty three seventy five rather than these two you're going to run into a similar issue if you have credit cards or some other intermediary financial institution grouping your payments together before they hit your checking account so now if I have to use this process I need to match this out to the bank feeds and so therefore I need to make sure that when I make a deposit I deposit them together as one lump sum so let's imagine what's going to come through the bank feeds now so if I say this is going to be the date and this is going to be the amount and then we're going to have the description which wasn't spelled right description review boom okay so then we're going to say that this happened on if I go back on over here let's say 220 221 so on 221 24 we have an amount that's going to be for the total two thirty three seventy five two three three point seven five and it's going to be a cash deposit so we'll have that and then let's also so let's do that so I'm going to have a cash deposit and I will save this as a CSV file so I'm going to save file save as and then I'm going to go browse and we'll save it as a CSV file so we can upload it to the bank feeds and close this let's go back into our QuickBooks first tab into the transactions and then I'm just going to upload that to mirror what would come through the bank feeds selecting the dropdown upload and then we'll go here and say that we would have then then this is the location and so now we have this 405 that I'm going to upload continue it's going to be into the checking account continue yes column yes what's the date format that picking up date date description description amount amount okay continue there it is it's an increase continue boom so it's done we've imported it so now we're imagining that comes from and through the bank feeds so if I go into this amount here notice it didn't automatically match up to the two payments we made because the two payments were separate that are adding up to this amount so if I go to the match item here I can see if I check both of these off then it will match out so I could do that I could wait till it clears the bank and match that out but that's probably not the system that we're going to end up using we're going to try to avoid having to do that when we do in essence a bank reconciliation which is kind of what we're doing here because now we're matching instead I'm going to close this out do you want to leave without saving yes when these amounts are in undeposited funds the next step is that we're going to deposit this as one lump sum so that it will be in the same format that will match what goes through the bank feeds so if I go to the first tab here and I say that we want to go to the plus button make a deposit on our end not through the bank feeds using this fields down here which will allow me to group these two things together depositing it into our checking account at the lump sum which means that when the QuickBooks comes through with the bank feeds it'll probably see that and be able to match it automatically instead of us having to do work on the bank feed side if we are trying to compile multiple things together as we are matching to the bank feeds for the deposits we probably don't have the most efficient system it should be really easy the bank feed once we get to that point should be automatic what you should do then is adjust your system over here using possibly this undeposited funds you'll have this issue with cash often times transactions you can also have it again with any intermediaries such as a credit card you might have a system where the credit card also takes out a fee if they take out a fee then you can add the fee down here and say I'm going to say this is a bank service fee bank charge or something like that I'm going to add this it would be an expense account boom and I'm going to say bank charge and then it would go into here and then you could say that this would be a negative $5 or whatever so that the net amount that goes into your bank will match right so you could put that charge in if you need to we don't need to here I'm going to close that out this is the amount that needs to be deposited so I'm going to say save and close what does that do if I go to balance sheet it puts it into the checking account so now we have it going into the checking account I'm not sure what date it was I put it in there but 233 goes into the checking account there it is and then the other side if I go back is going out of the payments to deposited account which is just a clearing account which goes up and then down clears out and so it goes out here in the same format with the two transactions that I can tick and tie out goes into the checking account as one lump sum so now when it clears the bank if I go back on over here and refresh the screen I'll refresh it and see if it picks up the match it should be able to see that automatically possibly and pick it up see now it matched it so now it sees it so now I'm going to say if I go into that it matched it it looks correct actually record anything because we had to do it internally due to having to go through those to record the sales tax and then use the under deposited funds but by the time I do the the bank reconciliation which is what I'm doing now with the bank feeds in essence it's easy to match this will not record anything new it's just matching what we already recorded alright so that's the general system with the sales tax it throws a wrench into the system it uses the sales forms and the invoices what if you don't want to do that what if you want to wait till it clears the bank you're just going to make sales wait till it clears the bank and then record it at that time let's do a quick analysis of what you might do in that situation you might say okay I'm just going to do this in Excel I'll do it fast because we're running long so let's say I'm going to make this currency and say okay and let's also make it bold alright so let's say if you had sales of $5,500 and we're going to apply sales tax rate let's imagine the rate is 5% .05 percentify that home tab number percentify that would be 5% that means the sales tax amount would be the 500 times 5% or $25 let's put an underline here that means the total collected cash collected from the customer is going to have to be 500 plus 25 so you'd have to sell it for 525 in order to collect the sales tax for example I could say okay let's just do it this way if the sales are 500 then I'm going to say 1 plus sales tax rate in other words equals 100% plus .05% 105% if I percentify this home tab number 105% underline so then cash collected cash collected would be 500 times 105 100 or 525 would be the general the general idea so what you could do is that you can just make sure that when you make the sales you have your price and the sales tax included when you make the sales so that you're collecting the sales tax as you make as you make the sales that's going to be the general idea you make the sales and then when you record the deposit the deposit comes through the bank feed when the deposit comes through the bank feed it's going to be increased in the checking I'll do this with debits and credits it's going to be checking the checking account is going to go up with a debit of the 525 the other side is going to go to sales revenue of 525 now notice when you do that the problem is that you've over you've overcharged sales because the sales tax should not be included in the sales number right so now we're including the sales tax on the income statement when we're supposed to be taking it off the income statement so then you can calculate your sales numbers and at the end of the day you're going to have to pay the sales tax to the government well how would you calculate so the gangster comes in the government and they want their protection money they want their 5% what you don't want to do is take the sales of the 525 times the sales tax rate sales tax rate of 5% 0.05 and this will be this times this because you get to a sales tax it's too high right the sales tax was already included and the 500 here so what you want to do is back into it basically what we have is sales let's imagine we don't know what sales is because you had multiple sales rather than just one sale of an item you'd have sales and then we'd have the sales tax let's call this the this one one plus the sales tax which we know is 1.05 and let's percentify that would give us the cash collected which we recorded as sales which we know is in our case we know that's going to be the 525 and then we'd have to do our algebra and back into the unknown you know this would be X right so that's kind of the calculation that you would need to do X times 1.05 equals the 525 and then if we if we work that out then we're going to say that of course it's going to be the 500 right so we're going to say 500 double checking times this times this is the 525 so then so you're going to pay then you know the 25 right the difference X is 25 and the difference 525 minus the 25 is 25 so that's the sales tax so then when you pay the sales tax what you're going to have to say okay I can see the sales tax payment will also go through the bank feeds right so when you pay the sales tax you'll see an expense going through the bank fees a decrease to the checking account so the checking account will be going down when you see it come through the bank feeds at 25 and then the other side of that is going to go to not sales tax expense not decreasing the payable because you didn't have a payable but you're going to reduce the sales so I'm going to reduce the sales see so what happens is I overstated the sales when I made the sale because I include the sales tax and then I reduced the sales when I pay the sales tax bringing me back to the proper amount of sales $500 so that's kind of a workaround that you can do if you if you don't want to use QuickBooks widget because you don't want because you don't want to use the sales forms or the invoices because you just want to deposit money into the checking account and just record that as sales then the question is well how do you calculate sales tax well you include the sales tax when you make the sale you can do that and then you take your revenue which was subject to sales tax and basically back out the sales tax being careful that you're not overpaying you know the tax and so when you record the initial amount that goes through the bank feed you're going to be overstating revenue because it would be kind of like you're counting it as though it was revenue and a normal business expense like you would think you would have revenue go up and then when you pay the taxes this should be sales tax expense but you don't want to put sales tax expense on your income statement or your tax return for federal income taxes if you're in the United States because that's not the way they want to do it it's the off income statement so instead of making it sales tax expense which would still result in a net of 500 net income from the transaction you just reduce sales again so sales is going to go back down to the 500 so now you're at the same point equivalent to as though you didn't record the sales tax on the income statement right that's the idea that's kind of like the work around if you want to really try to stay on a cashed based system and just kind of base everything off of the bank feeds then you're going to have to basically manually calculate your sales tax