Sales Tax is not added in item costing.

nrapendra

hi all,
i have purchased a item with following details

Item : xxx
Qty : 10.00
Cost : 10.00
Amount : 100.00
Tax :8.00
__________________________
Invoice Value : 108.00


when we see the purchase cost of item it shows 100.
while it should be 108.

any idea ??????

kriki

I don't know how sales tax is working, but with the VAT-system it is normal, because VAT is neutral for companies. This means VAT is NOT a cost, so it should not be taken into the item cost. Probably it is the same for sales tax.

Deep

Exactly. Sales Tax is not included as an inventory cost.

nrapendra

hi deep,

then how we can get the exact costing.

if we have to customize it, then how we can do it.

pls help.

nav_doubts

Hi

There is an option in the Structure card to load on inventory.
Agnst the Sales tax option enable the Load on Inventory option.
This will update your inventory costing accordingly....

No Customization is required.

insanni

as long as i know there is no relation between cost and tax
accounting department should not ask the 'real cost' as you think
i dont know the tax rule in your country, but here, you will calculate between VAT In (from purchase) and VAT Out (from sales), so u can do a compensation (VAT Settlement)

sanni

AdamRoue

If your tax is offset why is it in the cost? If you roll it into your cost you will also be incorrectly reporting your margin, and in the accounts how will you split out your tax form your cost, you cannot have it in the ledger twice

Savatage

I agree Sales Tax has nothing to do with the cost of the item.

If that was the case where would it end?
How about the freight charge paid to get the item..does that add into the cost?

etc etc.

themave

Savatage wrote:

I agree Sales Tax has nothing to do with the cost of the item.

If that was the case where would it end?
How about the freight charge paid to get the item..does that add into the cost?

etc etc.

Our auditor wants us to include Freight cost in the cost of the item, if we buy 10 items on an invoice in the freight is $100, they want us to include 10 in the cost of each item.

We have so far been able to avoid that, by booking incoming freight in a cost of goods sold account. but they argue that is incorrect as it properly belongs to the cost of the inventory being held.

Now as far as sales tax goes, the question is why are you paying sales tax for inventory, if they are for resell (which is what inventory is by definition) then you should not be paying sales tax on it.

and VAT has already been covered,

Savatage

themave wrote:

Savatage wrote:

Our auditor wants us to include Freight cost in the cost of the item, if we buy 10 items on an invoice in the freight is $100, they want us to include 10 in the cost of each item.
We have so far been able to avoid that, by booking incoming freight in a cost of goods sold account. but they argue that is incorrect as it properly belongs to the cost of the inventory being held.

We Have Freight In & Freight Out G/L accounts too. Freight In is located in our "COGS" section of the G/l while Freight out is located our Operating Expense Section. For us a delivery might have 100's of different items, are we supposed to divide up the freight charge and spread it thoughout the items, thats a big job keeping up with something like that. and with constant gas price flucuations the big carriers are always altering their fuel surcharges. It seems to be too much of a mess to include freight in a cost as well as tax (to get back to the subject).

As I stated before where does it end then? Add Tax, Add Freight, Add electric because you need to see when it arrives, add the salary of the employee that receives the goods, etc, etc. who decides where the break is between what gets added to the cost of an item? **Hope that made sence 8)

themave

Savatage wrote:

....... **Hope that made sence 8)

it makes since to me, that is why we have fought the auditors on it, they have to live with a freight in and frieght out accounts, but they don't like it.

At some point they are going to say they won't sign of on the statements, and we will have to change.

Alex_Chow

If you want to allocate sales tax into the item, you would basically have to turn off the sales tax calculation on the purchase side. Then in your direct unit cost field, fill in the cost the vendor charges you including tax.

Another way is to use Item Charges. Basically allocating your tax amounts into the items received.

I'm not sure how sales tax is calcuated in your country, but in the US, if the item is for resell purpose, there is no sales tax. Even if there were sales tax, I recommend almost all of our clients to turn off sales tax calculation on the purchase side, it creates more problems than it solves.

I've only recommended sales tax calculation on the purchase side for 2 implementations in my lifetime. And both of those implementations had very complex use tax calculations.

themave

it is also a pain each year as it is always some new person out on the audit, it seems the low level employees that actually audit put there time in and leave, so we always have new individuals, same company just new fresh faced auditor just out of school.

they pull an invoice for a one hundred items, and one single freight charge and ask to see how it hit the g/l, every time that say that's not right, you need to have the cost in each item. We say no, go check with your audit manager, they come back and say we are doing it incorrectly and need to change, we say no, they give in.

Savatage

themave wrote:

we say no

That's nice of you - I usually say "Bite me"

ara3n

I recently on a project had to make a modification to include additional charges
(freight, fuel, surcharges) at the time of receipt.
This company pays around 1 million dollars monthly for freight and other charges and it's big part of the item cost.

Savatage

Wow that's alot of freight - i'm in the wrong business 8)

I guess it all depends on how you look at it. We here look at freight as part of the expense of running a business. It still hits the COGS account but does not factor into our individual item costs.

Freight can go either way but back to sales tax. I agree this this

themave wrote:

Now as far as sales tax goes, the question is why are you paying sales tax for inventory, if they are for resell (which is what inventory is by definition) then you should not be paying sales tax on it.

and VAT has already been covered,

nrapendra

hi,
u all are discussing having mind that sales tax is VAT.
But in india sales tax is direct cost for item.we have to pay for it to vendor.and we dont have any credit for it.now what to do ?

nrapendra

hi all,

still waiting for reply.

insanni

does it mean that your accounting does not need to split the journal (G/L Journal) between tax and buying price ? If yes, just put the additional 'sales tax price' in your buying price, the consequency is you must create your own purchase order if you still want to split between price and tax in printing that form

i think all of us mixed up with the topic, the transaction is purchase but we are talking about sales

insanni

insanni

does it mean that your accounting does not need to split the journal (G/L Journal) between tax and buying price ? If yes, just put the additional 'sales tax price' in your buying price, the consequency is you must create your own purchase order if you still want to split between price and tax in printing that form

i think all of us mixed up with the topic, the transaction is purchase but we are talking about sales

insanni

Deep

hi,
u all are discussing having mind that sales tax is VAT.
But in india sales tax is direct cost for item.we have to pay for it to vendor.and we dont have any credit for it.now what to do ?

First specifically, there are two Sales Taxes - Central Sales Tax (CST) and Local Sales Tax (LST) which is more or less similar to VAT.

In India, CST is to be loaded on inventory, and this can be done by checking the boolean field named "LOADING ON INVENTORY" in structure setup for CST.

This is not applicable to VAT or LST. Only Central Sales Tax is to be treated as a loading over the Landed cost of an Item.

David_Singleton

Hmm two topics in one thread no wonder its getting confusing in here. Firstly these are international issues, and just because the word "sales tax" is used, it doesn't mean that India follows US laws.

So lets break this in two:
Sales Tax added to cost.
Well let me give a simple example. Say you are a company in the UK, and you are small, (revenue less that 60,000 GBP per calendar year). Then there is no need to report VAT, BUT you also can not claim it back, so in this case you are required to record VAT as a part of COGS. So lets say a vendor supplies an item for 100 GBP and there is 17.5% VAT, then you actually have to book 117.5 as your inventory value for that item, and you can only claim it on your P/L when it has sold and moved to COGS.

Of course there are very few 60k GBP companies running Navision, BUT just because you personally have not seen this does not mean its not true. I was not personally on the moon ever, but I do believe that someone else has not been there.

Freight Costs.
Basically every country has different rules, but most companies allow for either exact inventory costing, or balance forward methods. Some countries are strict some are flexible. In both the UK and the US, provided you can get your auditors to prove that it works, you can easily use a mix of both methods. But if you look hard and fast at the law, then you must use one method or the other. So if you are counting COGS, then COGS must be accurate and MUST include the total cost to put the item in inventory, including direct cost, freight, customs, warehousing charges, loading fees, basically everything needs to be carried on the Balance Sheet until it is shipped and moved to the PL via COGS accounts. But you can also decide that you want to value stock according to rules that make sense to your business. So you could use a "actual or replacement cost method" you could use a standard cost, OR FIFO including additional costs.

But please don't get wrapped up in the idea that my first customer did it this way, therefore that's the law and I will never accept any other option. Read Ara3n's post, because it clearly shows a case where they needed something different, and if a million dollars of freight is involved, then for sure the customer checked this out, so I am sure he gave the customer the right solution.

Every customer is different, and its why we have such flexibility in Navision. Use that flexibility. Inventory costing is not hard and fast, it just needs to be reliable, and prove able.

ssingla

I agree Sales Tax has nothing to do with the cost of the item.

If that was the case where would it end?
How about the freight charge paid to get the item..does that add into the cost?

etc etc.

Welcome to the world of Indian Taxation.
In India we have the follwing Indirect taxes :
- Excise on manufacturing
- Service Tax on sale of services
- VAT or Local Sales Tax (Local Sales is erstwile tax now getting replaced with VAT, Only 3 states in India out of 26 have Local Sales Tax)
- Central Sales tax (CST) on Sales made outside the state.

There are various other taxes which are imposed by the State Govt.
Now talking about Local Sales Tax(hereinafter LST), LST paid on purchase is not recoverable hence will not be adjusted against the sales tax payable on sales. Therefore the tax amount is part of the cost of item and is normally charged in the Income Statement. Similarly CST is also not recoverable. The tax may be calculated after or before freight, packing charges etc.

I hope this will make things clear as per Indian scenario.

ssingla

hi,
u all are discussing having mind that sales tax is VAT.
But in india sales tax is direct cost for item.we have to pay for it to vendor.and we dont have any credit for it.now what to do ?

The loading of sales tax in the item cost is dependent on the field "Loading on Inventory" in the structure. Marking it true will add the cost of the sales tax on the item and marking it false will not.

Eugene

it is really wise to keep tracking things separately - operational costs taxes etc.

If you cannot fight auditors on this and are forced to give in and show them costs as they want, for god's sake do not break the standard navision "pure" cost calculation, better add another field "auditors cost" or something like that