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I received a question recently from a client in regards to their new Wisconsin Sales Tax Permit. The state is requiring the business to make a deposit for expected sales tax collected and the client asked how to account for it in Wave Apps.
The Wisconsin Department of Revenue is asking for a $20 deposit. While I'm tempted to dive into a discussion on the ridiculousness of the demand from a monetary and accounting point of view, I'll push the soapbox to the side in order to focus on the question in hand.
While there are several methods and strategies for handling prepaid expenses, including sales tax in Wisconsin and other states as well, the way I suggest is by setting up a new account in the Chart of Accounts.
Click to Accounting –> Chart of Accounts —> View Accounts —> Add NEW ACCOUNT. We'll call this account "WI PrePaid Sales Tax" as a current asset account. We want to add "WI" because it's possible at some point the client may cross into and begin serving Minnesota, Iowa, or Illinois, and if he does so, he'll need to get sales tax permits for each respective state sales tax authority (and may need to have deposits as well).
Next –> make the deposit to the state and credit the new WI PrePaid Sales Tax account appropriately.
When it's time to pay sales tax, tax that is paid from collections gets paid out of the general checking and is accounted for as normal. Sales tax that is paid using the deposit funds with the state are accounted for out of the newly minted current asset account called WI PrePaid Sales Tax Account.
For making more deposits, it's pretty much rinse and repeat as money is then transferred from the primary checking account to the WI PrePaid Sales Tax account in the same amount that is prepaid to the department of revenue.
Robert Weinstein is a husband, dad, stock market junkie, real estate broker, and of course…Insurance agent. Interests include my family, economics, marketing, technology, real estate, finance/investing, history, and Asia.
Robert’s insurance expertise includes having the designation of Certified in Long-Term Care (CLTC) and assist in asset protection for families with members entering retirement.
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