SAP Knowledge Base Article - Public

2809410 - Tax Calculation for Applied Discounts on Customer Invoice

Symptom

You created a Customer Invoice with Applied Discounts. Once the Journal Entry for this Invoice is posted, you notice that the system is calculating Tax for the applied discount.

Environment

SAP Business ByDesign

Reproducing the Issue

  1. Go to General Ledger WoC.
  2. Open the Journal Entries view.
  3. Search for the Journal Entry XYZ (ID of the Journal Entry created for the Customer Invoice).
  4. Open the Journal Entry.
  5. Check its Line Items, you will see that besides of the expected rows, there are 4 additional rows:
  • Two for the Applied discounts/penalties/sales discounts;
  • Two for Tax calculation on the discounts.

The postings(Journal Entry Line Items), is similar to the following lines:
(Amounts which are being used are for example purposes only)

Line 1: 1,806.41 Debit for Accounts Receivable Clearing Account
Line 2: 1,312.50 Credit for Accounts Receivable Domestic
Line 3: 643.91 Credit for Accounts Receivable Domestic
Line 4: 95.24 Debit for Penalties - Customer Invoice
Line 5: 47.62 Debit for Penalties - Customer Invoice
Line 6: 4.76 Debit for VAT (Sales and Use Tax Payable)
Line 7: 2.38 Debit for VAT (Sales and Use Tax Payable)
 
Total Debit: 1,956.41
Total Credit: 1,956.41

Line Items details:

150 from Applied Discounts and Credits (Line 4 + Line 5), are from Incoming Check ABC. This value is being divided as the following:

Penalties - Customer Invoice: 95.24 (Line 4)
Penalties - Customer Invoice: 47.62 (Line 5)
95.24 + 47.62 = 142.86

VAT (Sales and Use Tax Payable): 4.76 (Line 6)
VAT (Sales and Use Tax Payable): 2.38 (Line 7)
4.76 + 2.38 = 7.14

You are not expecting a tax calculation for this Sales Discounts/ Penalties. Hence, the last two rows, are not wanted. The expected scenario, would be something like the following lines:

Line 1: 1,806.41 Debit for Accounts Receivable Clearing Account
Line 2: 1,312.50 Credit for Accounts Receivable Domestic
Line 3: 643.91 Credit for Accounts Receivable Domestic
Line 4: 100 Debit for Penalties - Customer Invoice (95.24 + 4.76 = 100)
Line 5: 50 Credit for Penalties - Customer Invoice  (47.62 + 2.38 = 50)
 
Total Debit: 1.956,41
Total Credit: 1.956,41

 

Cause

You are expecting a Net Procedure posting logic, however system is posting using Gross Procedure Logic, and that is the corrected behavior.

When a customer invoice is paid, the deducted cash discount is posted using the gross procedure. The VAT is corrected automatically for the payment date of the invoice. Cash discounts are always posted to a separate account for granted cash discounts.
Hence, it's the reason why there are postings on the Tax Accounts.

Gross Procedure:
If cash discount is taken from the gross amount also the tax amount has to be corrected when the cash discount is taken.

Net Procedure:
If cash discount is taken from the net amount, the tax amount is not discounted, therefore there is no correction of the tax amount required.

Resolution

If you want to decide whether for the country a backdated tax calculation should be processed or not, or to choose the account for cash discounts on costs and revenues, using the account determination, or even in case you want to change the Account Determination. You can do it by creating your own deduction reasons for Cash Discounts in the Work Center Business Configuration.

Steps to create your Deduction Reasons:

  1. Go to Work Center Business Configuration.
  2. Choose overview.
  3. Open the Activity Deduction Categories - [Country DEF].
  4. Under Deduction Categories for Country DEF, choose the option Cash Discount.

You will find the activities for all countries for which you did your scoping.

Assign the deduction category Cash Discount to tax type Value Added Tax (VAT) in the work center Business Configuration.

Steps to Assign the Deduction Category:

  1. Go to Work Center Business Configuration.
  2. Choose Overview.
  3. Open the Activity Tax Adjustments for Deductions.

You can now define for each Tax Country how the VAT is corrected if a Cash Discount is posted.

See Also

Discounts: Cash Discounts and Bonuses

Cash Discounts for Receivables in Financials

Keywords

Cash Discounts, Applied Discounts, Tax Calculation, Journal Entry, General Ledger, Customer Invoice, Sales Discounts, Receivables. , KBA , SRD-FIN-GL , General Ledger , How To

Product

SAP Business ByDesign all versions