Recording Corporate Tax Refund


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P

Peter Saxton

What is the correct method for recording a corporate tax refund?
It depends on what has already been posted relating to the period.

Either:

Dr Bank
Cr Taxation (P&L A/c)

or

Dr Bank
Cr Taxation (Balance Sheet)
 
J

Joe

Rightly or wrongly I set up my tax installment payments as an expense
account. And recorded each months intallment payment as an expense. At the
end of the year received a $1000 refund. Having the option of receiving a
refund check or applying the $1000 to next years taxes, I made the choice to
apply the refund to next years taxes. So cannot run the amount through the
bank as no refund was actually received, just a credit. (could, but then the
bank transactions are fake...)

Need to somehow move the refund amount from the prior year to this year. So
I can credit the tax expense account, but what do I debit?
 
V

vcard

The offset is Retained Earnings, but you have your debits/credits backward:
- Your refund is reducing your expenses from last year, so your Retained
Earnings balance is higher (therefore you CREDIT the account).
- The refund from last year will give you a larger effective balance of tax
installments this year, so you DEBIT your tax installment payments account.

For reporting, it'll show up on your balance sheet (Change in Retained
Earnings section) as a prior period adjustment.

vcard

Joe said:
Rightly or wrongly I set up my tax installment payments as an expense
account. And recorded each months intallment payment as an expense. At
the end of the year received a $1000 refund. Having the option of
receiving a refund check or applying the $1000 to next years taxes, I made
the choice to apply the refund to next years taxes. So cannot run the
amount through the bank as no refund was actually received, just a credit.
(could, but then the bank transactions are fake...)

Need to somehow move the refund amount from the prior year to this year.
So I can credit the tax expense account, but what do I debit?


--
 
P

Peter Saxton

Rightly or wrongly I set up my tax installment payments as an expense
account. And recorded each months intallment payment as an expense. At the
end of the year received a $1000 refund. Having the option of receiving a
refund check or applying the $1000 to next years taxes, I made the choice to
apply the refund to next years taxes. So cannot run the amount through the
bank as no refund was actually received, just a credit. (could, but then the
bank transactions are fake...)

Need to somehow move the refund amount from the prior year to this year. So
I can credit the tax expense account, but what do I debit?
You need to work out exactly what your tax charge/refund is for the
year. You seem to be talking about cash receipts/payments only.

Your comments are contradictory:

"At the end of the year received a $1000 refund."

"So cannot run the amount through the bank as no refund was actually
received, just a credit."

We can't help you if you don't give full information.
 
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J

Joe

Thanks, that worked.

vcard said:
The offset is Retained Earnings, but you have your debits/credits
backward:
- Your refund is reducing your expenses from last year, so your Retained
Earnings balance is higher (therefore you CREDIT the account).
- The refund from last year will give you a larger effective balance of
tax installments this year, so you DEBIT your tax installment payments
account.

For reporting, it'll show up on your balance sheet (Change in Retained
Earnings section) as a prior period adjustment.

vcard
 

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