The Difference Between Purchase Tax and Sales Tax

Learn how to enable the distinction between sales tax and purchase tax, set up the related accounts in the system, and see how they appear in reports.

Steps to follow:

How to do it:
You can distinguish between purchase tax and sales tax this way:

First: Enable the option to distinguish sales tax from purchase tax

1. Go to Settings

2. Choose General Settings

3. Enable the option Distinguish between sales tax and purchase tax

4. Click Save

   

Second: Set up the purchase tax account

1. Go to Accounting > Chart of Accounts

2. Click the + sign next to Current Assets

3. Add a new account named “Value Added Tax – Purchases”

   

Third: Update the sales tax account

1. In the Chart of Accounts, edit the existing tax account

2. Change its name to “Value Added Tax – Sales”

   

Fourth: Configure tax settings

1. From Settings > Taxes

2. Click Edit next to Value Added Tax

3. Select the new purchase tax account

4. Click Save

   
   

Fifth: View Reports

• Go to Reports > Account Statement

• Generate an account statement for the purchase account and another statement for the sales account.

  

Both accounts are reflected in the tax return as shown below:

Additional Notes:

• The system automatically separates amounts after setting up the accounts.

• You can track each tax separately through the account statement report.

• You cannot edit the purchase account after adding it to the tax.

• The tax return will be linked to two accounts (Value Added Tax – Purchases account and Value Added Tax – Sales account) and is affected by invoices. However, for manual entries and simple invoices, only the Value Added Tax – Sales account (2105) is affected, and the Value Added Tax – Purchases account is not. Therefore, make sure to record purchase tax only through purchase invoices.

Explanatory Video

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• Here’s a practical explanatory video: How to enable the feature to distinguish between sales tax and purchase tax and how it works

Keywords for inquiry:

• How to transfer the tax from simple invoices and purchase invoices to the purchase tax account