Simple cash based sales tax transactions

GoranB

I do not invoice in Wave so I didn't set up three kinds of sales taxes I collect and pay. My sales tax liability numbers come from my POS and I currently do not enter them until they show up in the bank feed transactions after they are paid. I categorize them as Sales Tax which is liability account and so they do not show in P&L without another entry that would transfer them to expenses. I haven't done that yet so they languish in liability account for time being.

Questions:
1. Since I'm not having Wave calculate the liability, do I need to use that account at all or can I simply create Sales Tax Expense account and expense these transactions as they come?
2. If I do that I guess I would not be able to use the Sales Tax reporting which is OK as this reporting also comes from my POS.
3. Any other compelling reasons to use the liability account?

Thanks!

Mikeg

@GoranB,
Since you are not using Wave to calculate sales tax, you would expense the sales tax. The reason you would expense them is because the sales tax collected is in your cash based sales. The two would offset each other.

GoranB

Thanks for your response.
Say my total collected was 1000 and 100 of this was sales tax. Bank feed sends me the transaction of 1000 that I categorize as sales and 100 I paid in taxes. This 1000 will show on my income statement as sales when it should be 900. So how do I properly categorize sales tax to affect the Sales on the income statement. Expense account would affect net income but not sales number.

Mikeg

@GoranB,
You can classify the sales tax payments as a refund of sales if you'd like. That way your sales is correctly stated. You will probably need to make an adjustment to sales in December since the sales tax payment would lag. Hope that makes sense. Sales tax is neither income or an expense but since you are recording all receipts as sales you would reduce the amount by the sales tax paid. This negates the effect of sales tax.