Tax Reclaim Adjustment

[DaveFarrington]

Our church is in NC and we are allowed to reclaim sales tax paid. I know that when we get our refund that I debit our income account and credit the tax reclaim account. My question is this.

There is more money in the tax reclaim account than we will get back. How do I adjust the reclaim account so that there is not more money in the account than we will get back.

We did not file in time to get refunds from earlier time periods so that is why we have less coming back than we paid.

Thanks
Dave Farrington

[JohnDMeyers]

I know that when we get our refund that I debit our income account and credit the tax reclaim account.

I do not follow this.

Is your refund money from the State that comes into the church?

Or is it something that the church pays to members to reimburse them for sales tax they paid?

[tborgal]

If I understand your question correctly, the amount you are not getting back from the state is now an expense to the church. Therefore you should credit the Reclaim account and debit an appropriate expense account. With a good explanation for the transaction.

[DaveFarrington]

John,

Yes it is a refund on sales tax paid by the church. When we make a purchase it is debited as an asset. For example say we made a purchase for office supplies I would make the following entry
01-1110 Church Office Supplies Credit 100.00
01-1910 Tax Reclaim Office Supplies Debit 8.00
01-5430 Office Supplies Office Supplies Debit 92.00

We will be able to claim a refund on that 8.00 from the state of NC. The problem is that there is more in the Tax Reclaim asset account then we will get back. Once we get the refund I need to know how to zero out the asset account.

Thanks
Dave

[JohnDMeyers]

Dave:

Tom nailed it above. You are using the Asset account as an "Accounts Receivable", so to speak.

When you know the receivables cannot be collected, you have incurred something like a "bad customer who ain't gonna pay" expense. (You probably could give the expense account a more appropriate name)