Handling sales tax and processing fees for unearned income

dabernathy89

This may be more of a general accounting question, but I'm also just not sure the best way to represent these transactions in Wave.

Some quick background: we put on an annual tech conference. Our ticket sales are processed through Stripe, and we charge sales tax on them. We record ticket sales as unearned income and then recognize that income on the day of the conference.

Last year, this seemed straightforward: all transactions were initially brought in as a split transaction. E.g. a $275 ticket was created like this:

• $264.18 deposit
  • $275 credit to a customer prepayment account (unearned income / liability), with sales tax applied (8.25% = $20.96)
  • $10.82 debit to a payment processing fee account

Then on the day of the conference we record a transaction recognizing all of this income. So if we only sold the single ticket, that would have been:

• $264.18 debit to the unearned income account
• $264.18 credit to our sales account

However, Wave no longer allows me to apply sales tax to a liability account.

So my question is, what is the best way for me to record these transactions? I need to:

• record the income as it arrives as unearned income
• record the income as a credit to "Sales" on the day of the conference
• record the processing fee (preferably on the day of the ticket purchase)
• record the sales tax (on the total purchase amount, including processing fee)

I looked into simply creating a new transaction on the date of the conference for each purchase (crediting the sales account), but:

• I don't see a way for me to simultaneously debit the unearned income account without an additional journal entry.
• Unless I record the processing fee on this second transaction, I have to manually override the sales tax amount since the second transaction would exclude the processing fee

JulianP

Hey @dabernathy89 !

As you may know, previously Wave was allowing transactions from non-anchored asset accounts like for example a payroll liabilities account (which does not incur a sales tax in real time) to be allowed a sales tax transactions to be applied. This was the same for equity accounts and this was not fully correct on Wave's end. We've since revoked this type of transaction to incur a sales tax.

Essentially all accounts moving forward like your bank asset accounts, and credit card and some loan accounts will be able to have a sales tax applied. This is because these types of accounts do typically incur a sales tax in the real world.

When reading your inquiry, the first workflow that came to mind is using a Money in Transit account. With a money in transit account you can allocate your ticket sales there and have them "pending" so to speak until you want the funds to be deposited/transferred into the sales account of your choosing. To learn more about this workflow, feel free to checkout this Help Center article (this workflow is used for a variety of instances such as undeposited checks). Alternatively, you can use Journal Entries to allocate your ticket sales accordingly like you suggested as well.

With that being said, as much as I'd like to try and help answer every question I get, this one may be better suited for an accounting professional especially since I'm not sure what the tax implications may be with each workflow. This one is a bit outside of what I can advise on.

You can see what other entrepreneurs have done to solve a similar problem, or find an accountant near you in our community forum.

dabernathy89

Thanks @JulianP! I'll definitely check out the Money in Transit option. Not 100% sure if it will work since we still get the money deposited in the bank soon after the customer pays, but well before the conference date - but it might work!

I also received a response from Wave customer support that said "You should still be able to apply a Sales Tax to a transaction which is posted to a Customer Pre-Payment account." - so maybe I just need to set up a new account in that category.