and now we will learn about sales tax defaults for invoices when do we actually owe the tax
well that's a question of cash versus accrual you see if we're on the accrual basis it means the tax
is owed when the invoice is made however if we're on the cash basis the tax is owed when we actually
get paid for the invoice and if we only get a partial payment that means part of the tax is
owed the tax that is old will be proportional to the amount of the payment and I'm going to
show you in an example in this video but for our first example let's leave the default set as as
of invoice date and now we'll enter this invoice January 15 did 10 editing for Betty and we made
her invoice number 1 let's take a look from the main menu click customers create invoice the date
is back on January 15th the customer is Betty and the item is editing and we did let's take a
look at the instructions we did ten so ten editing for Betty and the tax for ten editing is a hundred
and twelve dollars that's because Betty has New York state tax 8% and editing ten editing is one
hundred and forty etc etc now when we click Save and close we can look at the sales tax liability
report don't forget to push a for all and we look at the New York state tax the total that
we owe to New York we can double-click and we can see that this last invoice on January 15th added
the full amount of tax for that invoice a hundred and twelve dollars when we double-click we can see
the invoice and there is no indication that we got paid this proves that QuickBooks declares
that we owe the tax at the moment that we make the invoice now let's actually go and change
the default to upon receipt of payment from the main menu click Edit preferences the category
of preference to choose a sales tax then click the company preferences tab in the bottom left
where it says when do you owe sales tax click upon receipt of payment cash basis now click
OK and now let's take a look at the next example and now that the preference is changed let's take
a look at this example imagine January 16 did 20 editing hours for Betty from the main menu click
customers create invoice the date is January 16th the customer is Betty the item is editing and both
the customer and the item are taxable now after we put in the quantity and push tab we see that
there is two hundred and twenty-four dollars owed to New York State for this particular invoice but
look what happens after we click Save and close from the main menu click vendors sales tax sales
tax liability report and push a for all notice New York state sales tax did not change when we
double-click the total that we owe as of January 16th to New York State we see that the invoice
for January 16th is not even listed in the report that's because we change the defaults and none of
the sales tax is owed because we only made the invoice and we did not yet receive payment you
may also notice that the invoice dated January 15th that was here a moment ago is gone that's
because the defaults were changed and if the money has not been paid on the invoice it means the tax
is not owed for the previous invoice either and now let's see what happens when we get paid for
that invoice imagine on January 17 we received $1,400 from Betty for the January 16th invoice
which is about half the invoice service amount from the main menu click customers receive payment
the date that we received payment was January 17th the customer paid cash and the customer
who paid was Betty now we received $1,400 push tab and QuickBooks applies it to the
oldest invoice let's click the check mark in the margin to remove how it's applied scroll all the
way down and let's apply it to the January 16th invoice the way the instructions asked us to do
we click the check mark in the margin and you'll notice the entire $1,400 is applied only to the
invoice on January 16th now that's about half the service amount and it's about little bit less than
half of the invoice click Save and close and now will again open our sales tax liability report
haha the New York state tax has increased after receiving payment for that invoice and when we
double-click we can look here at the bottom and we can see for the January 17th payment which relates
to the January 16th invoice a hundred and three dollars of what was paid relates to the sales tax
and is proportional if we double-click we go back to the invoice and you can see the total amount
of tax was 224 we paid about half the invoice so this is a little bit less than half the tax that's
because the tax amount changes the balance of the invoice so this is the amount of sales tax owed
again even though 224 was owed since a little bit less than half the invoice is paid only a little
bit less of the actual tax is owed sometimes even very good students will ask why is the sales tax
payable account in the trial balance different from the sales tax liability report regarding
the amount owed let's take a look from the main menu click reports accountant and taxes trial
balance don't forget to push a for all on your keyboard to make sure the pulldown menu choice
is all now right now it says sales tax payable one thousand sixty eight dollars and eighty cents but
wait a minute if I open the vendor sales tax liability report and also push a for all it
says the total tax owed or tax collected which is really the amount owed is eight hundred and
thirty six dollars and fifty cents now I have explained in a previous video that the total
owed to each tax agency altogether must be equal to the liability account and the trial balance
sales tax payable so why is it different well I'll tell you it's because we have to change
the trial balance from accrual basis which is what it's showing now to cash basis which is
what we change the sales tax report over to when we change the default so right now the sales tax
report is showing under the cash basis but the trial balance is showing under a cruel basis
but if we change the trial balance to be the same as the sales tax liability report if they're both
showing the cash basis then they should show the same number here's our sales tax liability report
and when we click customize report we can see that it's already under the cash basis that's because
we change the preferences at the beginning of the video however when we look at the trial balance
and we click customize report we see the trial balance is under the accrual basis if we click
to change it to the cash basis and then click OK aah-ha sales tax payable in the trial balance is
now eight hundred and thirty six dollars and fifty cents which is the same as the total
owed on the sales tax liability report eight hundred and thirty six dollars and fifty cents