I Don't Know!.. Year-End and Adjusting Journal Entries and Sales Tax

Posted by Mary Thomas on Feb 13, 2020 9:15:00 AM

closeup-portrait-of-her-she-nice-attractive-puzzled-ignorant-girl-picture-id1132758418  At the end of year, everyone closes the books.  Your accountant goes over the records, you explain unusual transactions, and you enter year-end and adjusting journal entries.  Everything is great and you're ready to go.  Right?!  Wrong!...very wrong!

Depending on what accounts the entries impact, you may be required to explain why the value of entry is not subject to sales or use tax.  I'll say it again!  You may be taxed on the year-end or adjusting journal entry if the entry impacts specific accounts.

For example, if a journal entry impacts a fixed asset account, you had better be able to explain that entry and why the change to account is not subject to sales tax.  Ask your accountant, review the explanation to determine the sales or use tax implications, and retain the documentation for the appropriate period of time, i.e. 3-4 years.

When an auditor asks to review the activity for specific accounts you must be able to explain all account activity.  "I don't know" or "my accountant told me do make this entry" isn't going to cut it when you are asked why the account balance changed.  Document the change in real time- just in case your accountant wins the lotto and moves to parts unknown.  

Topics: Sales Tax, Use Tax, Sales Tax Audit, Goals, Education, Business Management, State Tax, Business Owners

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