Tax coding for supplier refund interest received

Sandra_10124565

Hi all,

We received a refund from our insurance company for overpaid premiums, which also included interest they paid us because of the overpayment.

I entered these as a Supplier Credit so that I could code them to the original expense accounts, then made a Deposit entry against Accounts Payable to clear this credit and finalise the transaction as a deposit into our bank account. This all worked fine.

For the Interest they paid us, I entered this in the same Supplier Credit against our "Interest Received" income account, with an INP tax code. I have just noticed that this interest is now showing up in our Tax Summary Report in the Purchases section with an INP-P code, which I believe is what happens when a sales tax code is used in an purchases transaction.

Does anyone have an idea how this transaction should be done so that the tax coding stays correct, and the entire deposit still stays altogether as one? Or should I just ignore this? I am using Reckon Accounts Premier Desktop 2021.

Sandra

Acctd4

In this situation - in order for everything to appear where it should - I would be using a “Clearing” account. This is a dummy bank account that allows you to receive & pay out from a single holding account.

Remove the interest component on your Bill Credit entry to just reflect the original Bill amounts being refunded (The interest is input-taxed income & therefore should be entered via a Sales Receipt)

Edit (or delete & re-enter) the Deposit - as per the refunded Bill Credit amounts only - & Deposit To your "Clearing" Bank account. Ensure you enter relevant Memos for easy future identification

In your Clearing account register, add/select the applicable Insurer Supplier Name in the Payee field & OK/Record this to update (This corrects a long-term glitch where the Payee Name drops out of Deposits, preventing the transaction showing under the applicable Name's transaction list!)

In Pay Bills, allocate the Deposit against the Bill Credit to clear these.

Next, you will need to setup the Insurer as a Customer & can use the same name as in your Supplier List but differentiate by adding a "(c)" (for "Customer")

If you don't already have an Interest Received Item in your Item List, you need to create one (I create it as an Other Charge-type) & allocate the INP tax code (the default amount can remain blank/0)

Now enter a Sales Receipt for the interest component amount received but - instead of your usual bank account - select your "Clearing" account again to Deposit To. Don't forget to add a relevant Memo!

You will now have the full, correct amount that you received sitting in your "Clearing" account so ....

Enter a Write Chq to transfer this payment into your business bank account, dated accordingly on the relevant deposit date. Again, enter applicable Memos in both Memo fields as different reports show the different Memo areas so entering in both means you'll always be able to see it! (You may want to create an Other Name called "Net Clearing TXFR" or similar that you can use as a generic name for these types of Clearing transactions. IMPORTANT: Do NOT enter ANY tax codes on this Chq! The tax code field must be left BLANK as this is simply a transfer/movement of funds from one account to another - The (tax-coded) sales/expenses have already been entered (via the Bill, Bill Credit & Sales Receipt!)

Your "Clearing" bank account should now be at $ 0.00 & the applicable transactions are coded correctly for BAS/reporting 😁

Sandra_10124565

Thank you so much for taking the time to write all of this Shaz. That's a lot of transactions for each deposit like this, but it works!

The only "shortcut" I took was using a Transfer in the final step to transfer the total amount from the Clearing account back to the business bank account, but from what I can see so far it achieves the same end.

Thanks again,

Sandra

Acctd4

Yep, was going to add that you can use "Transfer .." rather than "Chq" for that - I just prefer the additional fields available on a Chq! 😊

Sandra_10124565

This might be a stupid question, but how do I mark the post as "Accepted Answer/Answered"? I can't find a button to do this ....

Acctd4

That's interesting .. I had assumed there was a button of some sort as these tags appears on some posts ... @Rav ?????