So how do I record a tax refund from the ATO? I did a journal entry but for some reason the refund comes up as a liability in my balance sheet. That can't be right!
Please help a simple graphic artist understand this...
Following on from my last post in your previous thread
The 4 tax accounts in R1 are all liability accounts.
GST Payable (this the the parent account & you don't really need to use it)
GST Collected (tracks tax on sales)
GST Paid (tracks tax on purchases)
ATO - Integrated Client Account (can be used to record ATO payments/refunds to offset the amounts in both GST Collected & GST Paid accounts)
I'll use a simple example to explain...
Income for the period is $1,000.00 + $100.00 tax collected on sales/income.
Expense for the period is $5000.00 + $500.00 tax paid on purchases/expenses.
The $100.00 tax collected is tracked under the 'GST Collected' liability account as positive amount (increasing the balance).
The $500.00 tax paid is tracked under the 'GST Paid' liability account as a negative amount (reducing the balance).
The current balance of the 4 tax liability accounts is (negative) -$400.00. So in this scenario the ATO owes me a $400.00 refund.
The ATO pays me the $400.00. So in my journal I need to increase the balance of the liability by $400.00 & increase the balance of my bank account by $400.00
My bank account has increased by $400.00
My tax liability has increase by $400.00 (bringing the total from -$400.00 back to $0.00)
That all makes sense for GST tracking, but I'm talking about a personal income tax refund, not a GST refund.
As a sole trader I don't track payroll, so I'm not clear on how it works for PAYG.
Perhaps this is confusing because I have started a new set of accounts with Reckon One (in this fin. year) and the refund in question is for the previous year? I'm just thinking that I did pay quarterly tax payments in the previous year, and I supposed this refund would offset against those payments, but they're not shown in this set of accounts.
Is it possible (pretty please?) you could do a similar explanation to the above but for payg?
This is a personal item, so you should put this in the Equity section, the account name is Owner's Capital contribution, (deposits) or Owners Capital Drawings (withdrawals)
When you start your PAYG instalments, make another account in this section calling it PAYG Instalments, so that when you give your accountant your paperwork they can identify them.