Include Tax or Charge in Valuation or Total?
Alright, let’s talk about the Tax or Charge field in the Taxes and Charges table of purchase or sales transactions. It basically has three options:
- Total
- Valuation
- Total and Valuation
To get a grip on what each charge type does, let’s dive into an example. Say we’re buying ten units of an item priced at 800 each, making our total purchase amount 8000. Now, this item comes with a 4% VAT, and we also had to shell out 100 bucks for transportation.
Total:
A Tax or Charge categorized as “Total” will be part of the total amount in purchase transactions but won’t affect the valuation of the purchased item.
For instance, let’s say we have a 4% VAT applied to an item, totaling INR 32 (considering the item’s base rate is 800). Since VAT is a consumption tax, it needs to be added to the total value of the Purchase Order/Invoice because it’s part of what we owe the supplier. However, it shouldn’t be included in the value of the purchased item itself.
When the Purchase Invoice is submitted, the general ledger posting will account for taxes or charges categorized as “Total.”
Valuation:
Total and Valuation:
A Tax or Charge categorized as “Total and Valuation” will be added to both the valuation of the item and the total of the purchase transaction.
For example, let’s consider transportation arranged by our supplier, but we are responsible for paying the transportation charges to them. In this scenario, for transportation charges, the category selected should be Total and Valuation. This means that the INR 100 transportation charge will be added to the actual purchase amount of 800. Additionally, the INR 100 will be reflected in the total, as it will be payable by us to the supplier.