Applying taxes on a bill

What this does

When you receive a bill from a vendor that includes tax (such as VAT or sales tax), you can record the tax amount on the bill. Taxes can be applied per line item or to the entire bill, and the system tracks them for accounting and compliance purposes.

Before you start

• You have permission to create and edit bills.
• The bill has at least one line item with a subtotal.
• You know the tax rate or amount the vendor charged (check the vendor's bill or receipt).
• Your administrator has set up tax rates in the system (if your region requires taxes).

Steps

1. Open Bills and create or edit a bill. Open Bills

2. Add your line items as usual.

3. Look for the Tax section or field. This may appear:

   • Below each line item (for line-level taxes), or
   • At the bottom of the bill (for document-level taxes).

4. If your system shows a Tax Rate selector:

   • Choose the appropriate tax rate from the dropdown (e.g., 5% VAT, 10% Sales Tax).
   • The tax amount will calculate automatically based on the subtotal or line total.

5. If you need to enter a custom tax amount:

   • Enter the tax percentage (e.g., 10) or the fixed tax amount (e.g., 100 AFN) as shown on the vendor's bill.

6. Press Tab or click outside the field. The bill total will update to include the tax.

7. Verify the total matches the vendor's bill, then save.

Accounting impact

When you apply tax to a bill, the tax is tracked separately from the purchase amount. In the general ledger:

• The purchase amount is recorded to the appropriate expense or inventory account.
• The tax amount is recorded to a Tax Payable or input tax account (often called "Input VAT" or "Recoverable Tax").

This separation allows you to report taxes correctly and claim input tax recovery if your region allows it.

Tips & common mistakes

• Line tax vs. document tax: Some regions require tax on individual items; others apply it to the bill total. Check your local regulations or ask your accountant.
• Tax-inclusive vs. tax-exclusive: A bill price may already include tax. If so, do not add tax again; clarify with the vendor.
• Exchange rates and tax: If the bill is in a foreign currency, calculate tax on the bill amount before converting to your home currency for exchange-rate accuracy.
• Keep vendor documentation: Always match the bill tax to the vendor's invoice; discrepancies should be flagged and resolved.