QuickBooks does not support cost tax; ESC does. This article will show you how to use the two together to handle cost tax effectively.
QuickBooks does not handle cost tax. ESC gets around this by sending a general journal entry over to QuickBooks for the cost tax. This can cause a problem if it goes directly to the Sales Tax Payable account because there will be no due date associated with it. Follow these steps to setup a Cost Tax Payable account to use as a temporary holding area for those taxes until they need to be paid.
- Create a new Cost Tax Payable account in QB. This will be an Other Current Liability type account.
- Go through the QB Connection Wizard in ESC (File → QuickBooks Connection Wizard) and add the new account to ESC. Exit the wizard once this has been done.
- Create all of your tax codes that are based on cost in ESC. Use the Cost Tax Payable account for the line items that make up the tax. The Cost Account should be some sort of cost of sales or expense account.
- Use ESC normally. As invoices are posted to QB that use the cost tax codes the cost tax will accumulate in the Cost Tax Payable account. This allows you to see the total cost tax liability accrued at any point in time.
- When it is time to remit your taxes you will have to make a single journal entry to move the tax from the Cost Tax Payable account to the Sales Tax Payable account. To determine the amount of this journal entry run the Sales Tax Report in ESC (Sales → Reports → Sales Reports → Sales Tax Report) for the desired time period. Add the Tax amounts together from each Cost Tax Group on the report. You may also want to add the material cost amounts separately for reporting purposes.
- Once you know the amount of the journal entry, create it directly in QuickBooks by going to Company → Make General Journal Entries. Debit the Cost Tax Payable account for the amount using a memo similar to this so that you will know what the transaction was for: Move 05/2009 cost tax so it can be paid. Credit the Sales Tax Payable account for the same amount using the same description but also associate your tax vendor to this line by selecting them in the Name field. Save & Close.
- Now simply pay your sales tax normally in QuickBooks by going to Vendors → Sales Tax → Pay Sales Tax. Select all the line items and choose OK. Print the checks when you are ready to do so using the normal method in QuickBooks.