I feel this is a simple question. I have received several credit memos for the sales tax from purchases we have made. Do we enter these credit memos as "sales tax income" or "sales tax expense" I would say income but I am noticing several previous entries show expense?
In the US, normally you include the sales tax on purchases as part of the purchase price coded to whatever account is appropriate for that purchase.
In the case of a refund, usually use the same account used for the purchase to reduce the expense in that account.
This is not correct, unless your tax agency allows you to take Taxes Paid against Taxes Owed, "So for clarification it would be recorded under a "sales tax expense" "
You include the total you paid in the total for what you bought. Inbound Freight and Taxes Paid are all part of the cost for what you got.
Computer or Vehicle for $5,000 + 7% tax, means your new fixed asset cost basis is $5,350. No Splitting this info. You bought a new office door for $1,000 + 7% = the repair of this door has an expense entry of $1,070. Not split to tax expense.
I am positive we are not understanding each other in terms of what is being asked and what is being answered. I have a credit memo. The credit memo is for $7.71. The $7.71 is the sales tax that we had paid on a prior invoice and weren't supposed to. Now I am entering the credit memo into QuickBooks. The $7.71 goes into an account. Right now previous entries are in an expense account.
Invoice = between us and customers. Credit Memo = between us and Customers.
Vendor Bill = between us and suppliers of goods and services. Vendor Credit = between us and suppliers of goods and services.
You Buy from a supplier. If you were not supposed to pay sales taxes on that, and were exempt, and as their Customer, they give you a Credit memo, you enter this as Vendor Credit, because this has a value you get to apply to your next purchase from that supplier.
And that means you can post this as some generic expense for what you bought from them, such as office supplies or as a reduction to COGS. Or, you now have an Overpayment entry, such as that Computer or Vehicle, the basis is wrong, so the Credit you are posting will go to the Fixed Asset account where you put the purchase you made, to reduce basis here. Or, this is for something that you track as inventory. You previously bought inventory, and essentially, it doesn't cost as much for you after all. So, you park this value in an Other Current Asset account. Then, you use Adjust Inventory, and pull that changed value from the Other Current Asset account to adjust the affected item(s), as a Value change. That will reduce the cost on hand and clear out that Other Current Asset account balance.
There is no Sales Tax Expense to adjust; you don't track Sales Tax Paid as Expense, so the refund to you is just a value for money you should not have needed to pay. What you bought from them, is that you just got, like a rebate or refund of part of the Cost you paid.
And the vendor credit is later refunded or applied to the next bill for what you buy from them, which needs to be entered in Full = gross. Then, you apply that vendor credit.