Applying taxes on a cash purchase

What this does

Taxes on a cash purchase (also called input tax or purchase tax) are levies charged by the supplier on top of the goods you are buying. Usystems allows you to add taxes at the line level (on specific items) or at the document level (applied to the entire purchase). Taxes are typically calculated after discounts and are recorded separately for tax reporting and compliance.

Before you start

• You have the ability to create cash purchases.
• Your organization has tax rates configured in Usystems.
• You know which tax rate applies to each item (from the supplier's invoice or your tax rules).

Steps

Adding a tax to a line item

1. Open a cash purchase form. Navigate to Purchases → New Cash Purchase Open in Usystems.
2. Add the item and quantity to the Line Items section.
3. Look for a Tax or Tax Rate field on the line (location varies by form).
4. Click the tax field and select the appropriate tax rate from the dropdown (e.g., "VAT 5%", "Sales Tax").
5. The system automatically calculates the tax amount based on the line subtotal after any line discounts.
6. The tax is added to the line total and the invoice total updates.

Adding a document-level tax

1. In the same cash purchase form, scroll to the Tax or Document Tax section.
2. Click to select or enter a tax rate that applies to the entire purchase.
3. The system applies this tax to the subtotal (after line items and document discounts).
4. Review the final total, which now includes both line taxes and document taxes.

Removing or changing a tax

1. On the line or document tax field, click to open the dropdown.
2. Select a different tax rate, or select None or No Tax to remove the tax.
3. The totals recalculate immediately.

Accounting impact

When you apply taxes to a cash purchase:

• The Cost of Goods Purchased (or relevant expense account) is debited for the after-tax amount.
• Input Tax or Tax Payable is debited (to track the tax you can reclaim, if applicable).
• Accounts Payable (or Cash) is credited for the full amount, including tax.
• The tax amount is recorded separately to support tax reports and compliance filings.

Tips & common mistakes

• Tax rate selection: Always confirm the correct tax rate with your supplier. Different goods or services may have different tax treatments.
• Discounts and taxes: Taxes are applied after discounts in standard practice. A 10% discount followed by 5% tax is calculated on the discounted price, not the original.
• Line vs. document tax: Line taxes apply only to that item; document taxes apply to the whole purchase. Some purchases require both.
• Tax exemption: If an item or supplier is tax-exempt, leave the tax field blank or select No Tax. Do not force a zero tax.
• Currency consideration: If the purchase is in a currency other than your home currency, ensure the tax amount is recalculated in the payment currency.