How to Record a Sales Tax Payment, Sales Tax Refund, or Discount on Sales Tax Owed

Set Up the Necessary Accounts in Your Chart of Accounts:

Before you can record sales tax payments, refunds, or discounts, you need to make sure you have the correct accounts set up in your Chart of Accounts.

Here’s what you should have:

- Sales Tax Payable (Liability Account)-This account tracks the sales tax your business owes to the tax authorities.
- Sales Tax Refunds (Income or Liability Account, depending on how you want to track it)-This account tracks any refunds you receive from the tax authorities.
- Sales Tax Discounts (Income Account, if you want to track discounts you receive on sales tax payments)-This account tracks any discounts or reductions you get when making sales tax payments.
- Bank Account (Asset Account)-This account tracks your company’s cash balance, where the sales tax payments, refunds, or discounts would be reflected.

Record a Sales Tax Payment in Balabook:

1. When you pay the sales tax to the government, you need to record this payment to reflect the liability reduction.
2. On the left-side menu, click Purchases> Expenses
3. Click the 'New Expense' button.
4. Enter Payment Details:
   - Enter the Description (e.g., "Sales Tax Payment to Government").
   - Select the Account: Choose the bank account or the cash account where the payment is made from.
   - In the Category dropdown, select Sales Tax Payment to Government (this should be a liability account created when setting up your sales tax system).
   - Enter the Amount for the payment.
5. Click 'Save' to complete the transaction.

Journal Entry for Sales Tax Payment:

- Debit: Sales Tax Payable (Liability Account) – This reduces the liability for sales tax owed.
- Credit: Bank Account (Asset Account) – This reflects the outflow of cash from the bank.

Record a Sales Tax Refund in Balabook:

When you receive a refund for sales tax from the government (for overpaid taxes or adjustments), you need to reflect the refund in your accounting system.

Journal Entry for Sales Tax Refund:

- Debit: Bank Account (Asset Account) – This increases the bank account balance with the refunded amount.
- Credit: Sales Tax Payable (Liability Account) – This reduces the amount you owe for sales tax, reflecting the refund.

Record a Discount on Sales Tax Owed in Balabook:

If you receive a discount or adjustment on the sales tax amount owed (e.g., from a government incentive or penalty waiver), you need to record this discount.

Create a Sales Tax Discount Account (if not created already):

1. Go to Accountant > Chart of Accounts.
2. Click the 'New Account' button and create an Income account titled "Sales Tax Discounts".
3. On the left-side menu, click Purchases > Expenses
4. Click Add expense (depending on the type of discount received).
5. Enter Payment Details:
   - Enter the Description (e.g., "Sales Tax Discount for Adjustment").
   - Select the Account: Choose the bank account or the cash account where the payment or adjustment is made.
   - In the Category dropdown, select Sales Tax Payment to Government and choose the relevant sales tax account.
6. In the Split transaction option, enter the amount of the discount on the second line under the Sales Tax Discounts account.
7. Enter the amount of the discount in the second line.

Journal Entry for Sales Tax Discount:

- Debit: Sales Tax Payable (Liability Account) – Reduces the amount owed.
- Credit: Sales Tax Discounts (Income Account) – The discount received will be recognized as income or a reduction in expenses.