Double Entry Accounting. What account should you use when accounting for taxes.?

Question

I am unsure of what accounts should be used when using double entry accounting to account for and paying a tax bill for the last quarter. Should it be considered as a liability, asset or an expense. What account should be debited and credited when the bill is recieved and when it is paid.

Answer 1

If you add some more details to your question to clarify whether you are talking about accounting for GST or a PAYG instalment (or both on the same quarterly activity statement) and provide some example figures, I'll give you a helpful answer.

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Cheers :)

Answer 2

Well it depends what accounts you have paid.  Did it include an IAS instalment and a BAS payment was there a Fuel Tax Credit or an FBT instalment.  I presume you are using accrual accounting and as such you would have an expense account for each tax (which is reset annually - FBT a little different) plus a provision account (liability) for each Tax.  Each month you would accrue to the provision account CR (liability) and DR the expense account.  When you make a payment you DR the provision account and CR the bank.  At the end of the financial year your expense account should represent everything you calculated for the year and your provision account should just have your final instalment.  Hope thats clearer than mud.

Answer 3

On the date of receiving the Bill

(Name of the) Tax A/c Dr.         (Expenses)

    To Taxes Payable Account   (Current Liablility)

On the date when taxes are paid off

Taxes Payable Account Dr.

To Cash/Bank Account

Thats' it.