Income tax expense

Coala

hi, i need a help in recording income tax expense for sole trader. How it is recorded in my books? Is it an expense in next years income statement? And double entry would be Dr expense Cr Liability?

viztopia

Coala wrote: »

hi, i need a help in recording income tax expense for sole trader. How it is recorded in my books? Is it an expense in next years income statement? And double entry would be Dr expense Cr Liability?

No, no, no. It should be posted to your capital account/drawings. It is not an expense.

kennyb3

It sounds very much like you should get professional help

Coala

viztopia wrote: »

No, no, no. It should be posted to your capital account/drawings. It is not an expense.

thank you for reply, that's what thought in the beginning, because sole trader is same as we all normal people and paying taxes from our pockets. All confusion starts when it comes to postings to software/ double entry. Last year was paid preliminary tax 90% from business bank account,do i have to record that tax on books at all? For me it looks like a liability at least for that 10%. Please help me with double entry.

viztopia

i agree with kenny b. you do need professional help. I mean if you are struggling on this, i wonder what else you may not be doing correct? In the majority of cases there is only one thing that can cost a business the most if it is done wrong and that is bad tax advice!

Anyway in relation to the tax, for a sole trader it is only recorded in the accounts as and when it is paid. you never accrue fro a refund or a liability. wether its the prelim amount or the actual liability payment it always goes to the capital account/drawings.

Coala

thanks a lot for clarification, it really helped me.