Invoice Posting With Output Tax
Let us go to this topic which is invoice posting with output tax.
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I am going to show you how to post an invoice with output tax. Output tax meaning that it is a sales tax, and purchase tax is known as input tax. Okay, this is the invoice screen. Normally, so far I have shown only how to select the customer invoice date and amount, I haven’t shown you this part here which you can select the tax codes applicable. Okay, let me just select the date, copy and paste it here, put a thousand.
Okay, I have not explained to you about these two options here. This is how we select the applicable tax rates. In any country, the government collects revenue using taxes imposed on the sales and purchase transactions. In western countries like US, UK and Australia, there is something called Value Added Tax, which is imposed on each and every invoice postings. In some other countries, the VAT is known as sales tax, so whatever it may be, whether it’s a VAT tax or a Sales tax, this is the two fields which will allow you to calculate the taxes. Now, you see these two entries here, these two entries are already present in SAP standard system. This is for the country, US. So depending on the country, these tax codes might vary. Since our company’s incorporated in US, Sun Company, we can see these two codes. Let me show you how to add a third code here so that you know how to create a tax code on your own. Let us pause here and then go to the configuration menu. Okay, this is the menu path where you have to define new tax codes for sales and purchases. Whatever that you’re seeing here is tax code. The S0 and S1 is actually tax codes. Those information are defined here in this screen. It is under financial accounting, financial accounting global settings, tax on sales purchase, calculation and define tax codes. This is also related to tax code settings, but normally, all these are preset by SAP system, so we don’t have to change anything drastically. We just accept whatever that is preset. You need to change the settings only if you want change certain calculation for tax calculation procedures in your implementations. But normally, it might not happen because SAP has done a good thing that it has calculated all the tax information from all the countries and preset the calculation procedure in these settings, so we don’t disturb this until, and unless it’s absolutely necessary to do so. For some countries where the tax procedure is very complex, they have even defined country-specific tax procedures. These are the countries where the tax procedure is very complex, until and unless you do an implementation in Brazil, Argentina, India, Italy, and so forth, you don’t really have to go and bother what is inside here, and this is for the global settings all across the globe.
Don’t worry about basic settings, but in fact, we will go through the basic settings in the expert training, but not in this training. If you’re interested to learn each and every options available here, you need to sign up for the expert training. Okay, now let us go here. This is very important. Define tax codes. This is where you define a new tax code so that it’ll appear here. You need to enter the country where your company is incorporated in. As I told you earlier, Sun is incorporated in the US in our example, so enter US. Now, you need to give a code for the tax code. I’m going to give O for output tax, and 5 for the 5%, because I’m going to create an output tax of 5%. One thing about the US tax system, in the US, the taxes are by the states. Each state will have a different tax rate, so the states are represented using a key called tax jurisdiction. Tax jurisdiction is referring to the individual states in the United States. So there are 50 and above states in the United States, so each state will have a tax jurisdiction code, which is already set up by SAP, so we don’t have to worry about that. We just select the state. Let me just put Missouri, MO, click enter. In Missouri, I have two tax jurisdiction. One is in Missouri and another is in Kansas City. Let me select Missouri, so I got it. Later on, I’ll show you where this is set up. Just hang on. Okay. Let me show you. Okay, go here, now go to the basic settings. Okay, you are here, right? In order to look at tax jurisdiction, you to go here, you see this, find tax jurisdiction, click this. I’m not going to explain in detail, but just to show you where it is defined. It’s a good idea to give you a rough picture. Choose this, TAXUSJ. US stands for United States, J stands for jurisdiction. TAXUSJ. All these are preset by SAP. Okay, now click, okay. I’m starting this because I’m working on a US company. See all this tax jurisdiction, the one we selected just now is M0000 all the way. Let us go and search for it. Let me just copy and come here, end position, copy and paste. It’s here, Missouri. The Kansas City is also here.
Alright. The way this is defined is, remember, you might be wondering how the system will know which are the tax codes related to Missouri, because since I enter MO, what the system will do, it will come and check the first two alphabets and select all the tax jurisdiction which starts with MO. That’s why you can see only Missouri and Kansas City. You cannot see Mississippi because it starts with MS, so that’s how the system filters. This is just for your information only. Alright, let me also explain something about the tax procedure. This is called a tax procedure. Tax procedure. Each country will be given a tax procedure. Let us go and check that. You can check all the tax procedures available here, define procedures. So roughly, you can expect the 240 hour tax procedures defined by SAP. One for each country. Argentina, Austria, Australia, Belgium. Let us go to TAXUSJ, which is meant for US. See, sales tax USA. That’s why I chose this. And then, you might be wondering where exactly we can specify which procedure to be used for which country? We can only see TAXUSJ here, right? We cannot see whether this is assigned to US or not, so there must be a place where this tax procedure is assigned to a particular country, so where could that be?
Let me show you. It is here, assign country to calculation procedure. Let me show you. US has been assigned to TAXUSJ. Let us go to US. Okay, see here, TAXUSJ. You know how it linked now? Let me draw a map so I can understand better. Let me pause it for a moment. Okay. This is a map. Tax codes are assigned to tax procedure. Tax procedure is assigned to country and tax jurisdiction is assigned to tax procedure. Just bear in mind, this part here is only applicable for US, tax Jurisdiction. Normally, in countries like, say for example, India, or China, or Japan, I don’t think there is any tax jurisdiction. What you can find in those countries is only these three. Tax jurisdiction is just an optional step to assign a tax jurisdiction to a tax procedure. You need to check the implementation country. If it’s the US, then you have to make use of this, otherwise, no.
Okay. Alright. Now, let us close various settings. You know how the system knows which country to assign it to. Alright, so when I say Missouri, then this tax code that we are going to define is only applicable for Missouri. You can have a different tax code for different tax jurisdiction. This is only for US. Tax, output tax, let’s put 5%. For tax type, you need to enter output tax or input tax. Output tax for sales invoice and input tax for purchase invoice. You can ignore the rest. It’s not relevant. For example, EU is only for European countries, so you don’t really have to bother. The others are not really relevant. Only these two are relevant. Click Okay.
Now this is a screen or table where you can maintain the rates. Since we are maintaining the AR rates, go all the way down and look for AR. This is AP, so don’t bother to enter anything here, just enter here, 5%. Just put 5, press save. This is only for Missouri, right? Alright, what does it mean now? I am going to customer invoice. I quit the customer invoice. I have quit, and I am coming again. You still won’t be able to see the output tax that you have created, the 05, because, the reason being, you need to assign a G/L account to the tax code, because what you have done now is only the creation of tax rate using a tax code, but how the system will know which G/L account to post the tax amount computed. The 5%, if you post an invoice for $1,000, the 5% will be $50, so where the system will post the $50 to? It has to be posted to a G/L account, right? Nowhere have you mentioned the G/L account, you have mentioned only the rates. So to mention the G/L account, you have to go to posting, define tax accounts and come down here, choose sales tax, MW1. You know why I choose MW1? Let me show you. It is because of this key here, MW1.
This MW1 refers to this MW1. The link is established using a transaction key. This is known as transaction key or account key, whatever it may be. You have to double-click here, put a Sun chart of accounts, and delete this. I was creating this just now. I have to delete it. I have to put 05, tax code 05, right? See this, I will put tax 05, and you need to enter a G/L account. If you don’t have a G/L account, you have to create one. I’ve already created one G/L account for output tax. Okay, let’s go and have a look at our tax G/L account. How have I created it? I press 00. Okay, I have created it as a P&L account under the account group, G/L accounts, and maintained a short tax of output tax, and field status group, I have maintained G001, general. Even though it’s a P&L account, I didn’t maintain it as other expenses or income, because since you pay back the tax amount collected from the customers to the government, this is not a revenue or expenses to the company, so that’s why I selected a general G/L account. General G/L account starts with this series, so I don’t treat it as an income or expense, even though it’s a P&L account. Alright, let me close this. I have created it. Before you assign it, you have to create it first, then you save it. It is saved now. Let us go back and check whether it’s loaded here. Okay, let’s see whether the newly created tax is appearing here. It’s not being shown, but it can be seen here, 05. I’m not sure why it’s not being shown here. Rightfully, it should be shown here. The 05 should be shown here too, maybe it’s a refresh problem. Okay, it doesn’t really matter, we still can continue. Okay, let me show you how we can continue. I select the sales account, enter 1000, and you see there is one more code here, tax code is similar to this. I choose the tax code from here, 05, this is the one that we created, and the tax jurisdiction, which we put Missouri, MO. Now, I put a tick mark here, account is not tax relevant, tax code will be ignored. What the system is saying is that, this account here, 50000 is not relevant to tax, therefore, the tax code that I entered will be ignored. See, it disappears. The tax code I entered has disappeared. You know why? This is not configured to accept any text codes yet, so how do we configure that to accept text codes? Just copy that, go to FS00. Yeah, it’s already here, just enter, go to control data. You see this tax category here, this field, let me change first. This field is the one which determines whether taxes can be posted to this account or not, so let us see what are the options available. You see the first one, only input tax is allowed. If I choose minus sign, then this indicator means that only the input tax is allowed. Input tax meaning purchase taxes.
But in this case, we are creating output tax. Our O5 is output tax. O stands for output, so we need to select the plus sign, and if we choose a star sign, asterisk, that means both of input tax and output tax will be allowed, but we won’t be using this because we know that this is the output tax account, we need to choose only the plus sign.
And only these three categories are important. The rest are not really important. Okay, let us choose plus and save it, so that output taxes can be posted to this account now. Okay, let me go again. Alright, let me put the tax code again to see what happens this time. Alright, let me simulate. See, now it’s okay.
5% would be 50, right? Let me just check why the 5% is not $50. Okay. I know the reason now. You know why it is not including 5% exactly? It is because of a setting here. The amount entered here is now being treated as gross tax, which means that the tax amount is included in this amount here, which is not correct. The 1000 entered here does not include the tax portion, so in order to tell the system about that, you need to go to editing, once again, press this button, go to editing, and choose this option here, calculate taxes on net amount. I choose to show you the help. It says that G/L account amount, which means the line item amount, and that does not include the tax.
If I put a tick mark here, then the $1000 that I entered at the G/L account level, the line item level, will mean that it does not include the tax amount, which is correct. Once you check the box, save it, come here, now the system will know that this amount does not include the tax. Now we have done that, but we also need to do one more thing, which is to change this to include the tax amount, because the tax of $50 will be charged to the debtor’s account, which is the customer’s account, so the total will be 1050. This is the correct amount to be booked under the customer account, so you need to include the tax portion here. This will be cross tax. This will be without tax. Now, we simulate. See, we get exactly $50. 5% is $50 of $1000. You click on the tax button here, you can see what is the percentage used to calculate the tax, which is 5% of $1000 which is $50, and which tax account it will be posted to. You get to see the tax percentage here. Tax percentage is not shown here.
Alright, you can also zoom in, just point here and press this zoom button to see more details of the tax portion. This is tax jurisdiction, Missouri, tax jurisdiction code, and so forth. The MW1, there’s more details on the tax level.
Let’s close this. Now we can post this. Have you understood? The only thing I can’t explain to you is why this button is not refreshed, this list. Normally, once you add the tax code, the tax code O5 should be listed here. This could be because of a bug in the system, maybe you can check your system. I have not applied the latest patches yet. See if there’s any latest patches. Otherwise, even if it doesn’t appear in this list, it doesn’t stop our work. We can still put the tax code here. It doesn’t really matter where you put the tax code. The most important thing is that the tax code should be applied in the G/L account, which can be done using this field here. This is just an extra tool only.
Make sure that the balance here is always showing zero and the green light is shown. For example, if you don’t do that, just put like this and simulate this, it is gong to throw an error message. See, both the debit and credit side does not match. There’s a balance of $50 in the credit side. The credit side is higher by $50. You know how I know it’s credit? Because of the minus sign here, and the light has turned to red. Balance not equal to zero. See that yellow tip, balance not equal to zero. Alright, so all you have to do is just make sure what is wrong with this, since the 5% is calculated on the G/L account level, this will go to the credit side, so the tax calculated will also go to credit side, which is $50. Therefore, 1000 plus 50 is 1050 on the credit side, on the debit side, there is only 1000, so that’s why you have extra of 50 in the credit side. So to level this, you have to make sure you put a tax on the debit side also, which is correct because the tax has to be booked to the customer also. Now, let us simulate. See, there’s no error message. Credit, 1050, debit, 1050. It matches. Okay, zero here and turned to green.
On the other hand, if we put 50 here, then it’ll also be a problem. It won’t match. Now, credit side is higher by 52. Okay. Similarly, that’s how it will happen. There’s one more thing you need to know is, this editing option, this calculate taxes on net amount, this has got a direct control of how this amount is treated. Let me show you. If I remove this checkbox, the system will treat this amount as a gross tax amount, which means the tax is included in here. See, the debit side higher by 50. All I know is debit is a positive amount.
Okay, let us go and change that. Make sure you have a tick mark here, so that you can enter the amount, 1000. Alright. One more thing, you can also enter the tax amount manually. I’ll show you how you can do that. You remove this. Calculate tax is removed, and you put the tax amount here and simulate.
See, output tax is manually computed. The system does not automatically calculate. Alright, you can also change the tax to 40. For whatever reason, you don’t want to apply a tax rate of 5%, you want to apply a tax amount of 40, 4%. You can’t really change the 5% to 4%, so you do it here. You enter the tax amount manually and simulate. It doesn’t really allow because you have a tax code. You need to remove the tax code and simulate. Once you enter 40 here, make sure you change the amount to 1040, otherwise you will have a problem. See, the system says that there is a balance of $10, because this is 1050 and this is 40. Since you have changed the tax amount to 40, this has to be changed to 1040. Okay, then this will be taken care of once you have done this, but the system will also throw a warning message because according to this tax code, 5% has to be calculated, but you have entered a tax amount of 40, so let us see how the system treats this. See this warning message, tax entered incorrect, code 5? Amount entered is 40, correct amount is $50, because it’s calculating based on the 5% you entered. But since this is a warning message, you can just press enter to skip that, and you can still post it.
See, error message just exists, C lock. Error lock over here, item 3 must be corrected. It doesn’t really matter. You can still post this, but if you go to taxes, it will look weird because the O5 is a 5%, but the amount that you enter is 40. You can still post this, nothing wrong, because as long as we got the tax amount correct, the percentage doesn’t really matter. But for whatever reason, if the users don’t want to accept this, they still want to make sure the 5% is not entered here, what you have to do is that you have to remove this tax code here. If you remove this, then what will happen? The system will not allow you to proceed because G/L account file 5000 has been defined as required. Valid tax code is required, so now this is a chicken and egg problem. It requires a tax code, and if you enter a tax code, the percentage will not match with the manual amount that you entered here, so what is the way out? The way out is you have to make sure this G/L account can also be posted without a tax code. To do that, go to the G/L account, come to the control tab, come to the tax category. You see this extra checkbox here, posting without tax allowed, just put a tick mark to say that the tax code is optional for this G/L account. You may or may not enter. Okay. That is what is controlled by this flag here. Save it.
Go back now. Oh, you need to quit the screen because to refresh the setting, you need to quit the screen. Try again, otherwise, the new settings in the G/L account will not take effect. 40 including the tax amount. This one is set to empty, sales-laptop. Okay. Now, I don’t have to enter a tax code or tax jurisdiction code. You can just leave it empty because I’ll make it optional. Now, I simulate.
It’s just giving a warning message. Okay. It’s not an error message like just now. You can still proceed. See, wait, something is wrong here. 1040. The tax amount should go to tax rate. Okay. Now, we’ll just put an invoice date. The tax amount, 40. Enter manually. Blank this off and choose sales-laptop, and put your 1000, and tax jurisdiction is O5, MO, Missouri, and simulate now. See, you have 40.
That’s about it. You can post this now. You can just post this. Let me just change it to the normal, 50, and have the system calculate it. Save it.
It’s a normal way of posting a tax. I’m going to post this. Okay. Let us post this. There’s an error message. Item three must be corrected.
