now our new accounting system will be set up for sales tax sales tax payable is a current liability
it's an account that is equal to the total of all money owed to each tax agency as of the transfer
date it goes up when we sell taxable merchandise or services and it goes down when we ultimately
pay the tax agency for the taxes that we collected from the customers sales tax payable is another
area of data that has to match a t-account in the chart of accounts the subsidiary records in sales
tax are the tax agencies and the money we owe to each individual tax agency exactly on the day
that we change accounting systems before making the adjustment for sales tax it is assumed that
sales tax is activated in the software in the new system it's also assumed that the sales tax
agencies are put on the appropriate list so that we can choose them as we make our adjustment and
of course you have to have the sales tax items put in and available for use before you can set
up the correct money amounts for each agency and the money amounts and the t-account for
sales tax payable so if you don't know how to do any of these things you can take the course
on this very website that will help you master everything about sales tax QuickBooks desktop
and quickbooks online do things a little bit differently from each other regarding managing
sales tax if you owed five hundred dollars in total of sales tax on the day of the transfer
it could be that you owe $200 to Department of Government and $300 to a different Department of
government or a different tax agency now if this were a QuickBooks desktop you would have one t
account called sales tax payable in the chart of accounts and that would be equal to all the money
that you owe to all sales tax agencies together however in quickbooks online each agency has its
own general ledger account to track the amount owed to that particular agency so in the desktop
it would look something like this the t account has a $500 balance but each individual agency's
record shows how much is owed to that particular agency but in quickbooks online you could think
of it like this both the subsidiary records and the T accounts in the chart of accounts show the
individual amounts owed to each individual sales tax department The Adjustment account that we use
to adjust sales tax is always an owner's equity account now that's going to be what we use to
adjust sales tax and the reasons for that or what we discussed earlier about how equity accounts are
what balance adjustments when we do a transition from one system to another but with QuickBooks
desktop the setup can use special features for adjusting sales tax but with QuickBooks Online
when we set up sales tax for transferring over to a new QuickBooks Online account we make a journal
entry to account for the opening balances for each of these tax agencies now in the desktop
version of QuickBooks the sales tax liability report is what shows the subsidiary records of
each individual tax agency and what's owed notice we have non-taxable sales that have been put in
as part of the setup now what we're going to do is adjust so we're going to click vendors sales
tax adjust sales tax due and all we have to do is tell QuickBooks first of all it has to be the
date of the transfer which is fine and this is a special feature for sales tax adjustment we simply
choose which particular tax vendor or agency and we put the amount in this case it'll be 300 for
New Jersey and then we click OK and of course the adjustment account we will use in this example is
opening balance equity click OK and you can see we now have three hundred dollars owed to the New
Jersey tax vendor if I make this report a little bit bigger you can see we owe a total of three
hundred because we owe three hundred to New Jersey now we'll make the other adjustment for New York
sales to adjust sales tax remember opening balance equity is the adjustment account the same date as
the transfer but the New York Department of sales tax should only be two hundred and now when we
click OK we now have starting in the new system we owe two hundred to New York we owe three hundred
to New Jersey and if we look at our trial balance as of the transfer date you can see one account
called sales tax payable for the total of five hundred dollars now here we are in the QuickBooks
Online Sales Tax Center and as you can see all the tax rates and agencies have been already set up
and you can learn how to do this in the quickbooks online sales tax course here on this very website
now let's make our adjustment we click the plus sign and we come down to journal entry we choose
the first liability account New Jersey ministry of tax and we put credit for the amount that we
owe as of the set-up date then we also put a credit to New York sales tax payable as of
the set-up date and of course the balancing entry goes to our good friend opening balance equity the
equity account that balances this adjustment the most important thing is that you remember we're
putting it as of the set-up date March 18th of 2017 is our example setup date now when we click
Save the trial balance now includes 300 owed to New Jersey for sales tax and 200 odd to New York
for sales tax and you would include these money amounts sent in with your first tax payment after
beginning the new system now of course our example numbers would be different if we had
accounts receivable and accounts payable if that were the case we would have set up receivables
and payables before setting up sales tax and that would include the section of undeposited funds the
sales tax agencies would already have balances after receivables and payables were set up so
therefore the adjustment would be the difference between the tax agency's balances after accounts
receivable and payable setup minus the agency's balance as of the set-up date for example let's
imagine that after the accounts receivable and accounts payable set up $100 is owed to New
York State sales tax department but we know as of the transfer date it's really 200 and let's
imagine after a R and a P were set up a hundred is owed to New Jersey tax but we know that it's
really 300 as of the transfer so what would we do well 200 new york tax on the transfer date - a
hundred new york tax after the AR and AP set up means the adjustment for New York is a hundred
and of course three hundred New Jersey tax on the transfer date - the hundred that's leftover from
the accounts receivables and payables set up means that you would adjust New Jersey for two hundred
and that's the only different thing that you would do from the demonstrated example once you
do that you're ready for the main setup journal entry and as always the main set up journal entry
is equal to the balances in each account as of the last day of the new system - the balances
as a result of accounts receivable and accounts payable set up and after inventory set up and now
also after sales tax set up and those would be the amounts for your main set up journal entry