Tax Adjustments : Tax adjustments are transactions which are entered to adjust the amount in the "Tax Payable" account to arrive at the correct tax liability that need to be paid to the tax agency.

The default tax agencies created by QuickBooks have Input and Output tax accounts in the "Chart of Accounts", so when you enter an invoice Output tax account is credited and when you enter a bill Input tax account gets debited. At the end of the payment period before making payment to the tax agency you would need to make an tax adjustment entry to offset the amounts in Input and Output tax accounts and transfer their difference to the Tax Payable account (to book the liability).

How to make tax adjustments in QuickBooks:  In order to enter a Tax Adjustment follow the steps below:

  1. Click Taxes on the left.
  2. From the Tax dropdown, select the agency you want to perform the adjustment for. Alternatively, click the right or left arrows on the carousel to select the relevant agency.
  3. GST
    • In the Returns section, under Open, locate the period for which you want to enter the adjustment. This section would usually show the period which the adjustment is to be entered.
    • In the Action, column, click Tax Adjustment.
    • This would open a journal entry form.
    • Here, enter Input, Output and Payable accounts for CGST, SGST and IGST and save the adjustment.
  4. VAT & CST
    • In the Returns section, under Open, locate the period for which you want to enter the adjustment. This section would usually show the period which the adjustment is to be entered.
    • In the Action, column, click Tax Adjustment.
    • Once you click on the Tax Adjustment for VAT or CST agency you would get a Journal entry page where Input Tax, Output Tax and Tax Payable accounts are automatically populated with the amount.
    • Verify if the amounts and the accounts are correct. You can check with your accountant/chartered accountant and verify the numbers.
    • Once you are sure that the numbers are correct, click the save & close button and save the adjustment transaction.
  5. Service Tax
    • In the Returns section, under Open, locate the period for which you want to enter the adjustment. This section would usually show the period which the adjustment is to be entered.
    • In the Action, column, click Tax Adjustment.
    • Once you click on the Tax Adjustment for Service Tax agency you would be taken to the Tax Adjustment page where you will be shown the Output Service Tax collected on sales, Reverse Charge payable, Input Service Tax paid on purchases, Excess credit from previous payment period & Reverse Charge credit.
    • Verify the Output Service Tax & Reverse Charge Payable amounts.
    • You can adjust the amount for Input Service Tax credit and Reverse Charge credit by click on "Adjust" link against them. You get option to "Utilise", "Write Off" or "Deffer" the Input Service Tax Credit and for Reverse Charge Credit you get option to change the "Utilise" amount. Rest of the amount for Reverse Charge Credit will be written off.
    • Once you have made necessary changes, click on "Save" button and the adjustment transaction will be saved.
  6. You would be taken back to the Tax Centre page and here you can verify that the Tax Payable balance shown for the agency has been updated.
  7. Next, in the Action column, click Record Payment (or click the dropdown arrow and select Record Payment) and record the tax payment.