Negative Figure on Balance Sheet

Julie Powell

Hi,  been paying the company tax PAYG(i) by cheque however I have not been creating a bill. Now I have a huge negative figure on my balance sheet against PAYG (i). How do I go about getting rid of this?  If I enter a bill to counteract the problem, this amount ends up in 'Accounts Payable' I am not sure about a journal entry or if this is the way to go.  If I delete all the cheques for PAYG(i), create new bills and then re write the cheques, I would surely need to do all the bank recs again!?! Help!

Charley

I take you are talking about PAYG Instalment and not PAYG Withholding. PAYG Withholding becomes a liability when you pay wages and when you pay it at the end of the quarter then the payment goes back to the liability account and hopefully it should zero out.

PAYG Instalment is either Company tax or personal tax based on your guestimated income for the year which you also pay quarterly. I see it as an Expense, line item "Tax on Taxable Income". Just change all the cheques to an expense account.

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John Gibson

Accountants answer: A negative balance on the Balance Sheet in the Provision for Company Tax (Current Liability type account) is not a problem, it simply shows the amount of tax paid in advance for the year! For example you might prepay $10,000 each quarter, and by 30th June you would have $30,000 paid in advance. On the July BAS you might pay another $10,000. Your accountant would calculate the exact amount of tax when doing the year end accounts (eg: $55,250) and the accountant should create a journal entry Debit Income Tax expense (Typically an Equity type account) and crediting Provision for Company tax. The $55,250 would be reduced by your credit of $30,000 and the Balance Sheet at 30th June wwould then show $25,250 remaining payable (in July reduced by another $10,000, leaving $15,250 to pay on lodgment. As Kevin says, no Bill necessary, but the payment is NOT an expense, and does belong on the Balance Sheet...

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John Gibson

??? Never has been since I became an accountant 25 years ago - while it IS a cost to the business, the tax payable is a liability calculated at the end of the year, once the taxable profit is determined. Some accountants will show the 'cost' as an 'Other Expense' type account......I never do that personally as I prefer to show the debt as an Equity balance (and the net tax debt - or tax refund if overpaid - on the Balance Sheet) - This was what I was taught at University, and by each of my employers thru the years, and what I do as a fully qualified accountant in my own business!

David Robertson_9018461

Australian Accounting Standards Board - AASB 112 INCOME TAXES

Accounting profit is profit or loss for a period before deducting tax expense

John Gibson

Yes accepted and known, but try doing interim financial statements through the year with the tax cost left in the P&L.....does not make sense. In my view far better to put it in the right place initially, rather than moving the cost of the tax at year end. Whatever works for you........

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David Robertson_9018461

The point being is tax an expense or an appropriation of equity to be dealt with as a balance sheet account. Clearly it is an expense account but how one gets the end result is as John says whatever works..

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