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  #1  
Old 06-14-2017, 05:43 PM
hodor hodor is offline
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coding a check to other income

have a check from irs that was a refund from a payroll tax overpayment. my cpa said to put the check to "other income". How do I do that? TIA


*edit to add, I have QBO. Should I have posted this in that forum?

Last edited by hodor; 06-14-2017 at 05:50 PM.
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  #2  
Old 06-14-2017, 06:53 PM
Lorin Browning Lorin Browning is offline
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You don't. You apply it as a credit to the tax expense.
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  #3  
Old 06-14-2017, 07:55 PM
hodor hodor is offline
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thanks for answer but i dont know how to do that at all.
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  #4  
Old 06-15-2017, 04:16 AM
Rustler Rustler is offline
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Use make deposits, menu plus>other in QBO, select the payroll tax expense account as the source (from) account, enter the amount, select the bank you are depositing to, and save
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  #5  
Old 06-15-2017, 08:53 AM
uniz uniz is offline
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Quote:
Originally Posted by hodor View Post
have a check from irs that was a refund from a payroll tax overpayment. my cpa said to put the check to "other income". How do I do that? TIA


*edit to add, I have QBO. Should I have posted this in that forum?
how come a CPA tell you to record a tax refund as other income? that's stupid.
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  #6  
Old 06-15-2017, 03:37 PM
BooksInVA BooksInVA is offline
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I have been told the same thing. The logic was that any money coming in is income (tax refund, refund from a vendor, rebate, reimbursement for an expense, etc.). That extra income is balanced by the higher expense (because you didn't credit it, it is higher), so the net income at the end of the day is the same. They said it especially makes sense if the transactions aren't in the same period (a refund this month for something paid four months ago). You could potentially be crediting an expense account that doesn't have any other transactions this period (or not enough) and have a negative expense on the P&L.

Last edited by BooksInVA; 06-15-2017 at 03:40 PM.
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  #7  
Old 06-16-2017, 10:40 AM
uniz uniz is offline
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Originally Posted by BooksInVA View Post
I have been told the same thing. The logic was that any money coming in is income (tax refund, refund from a vendor, rebate, reimbursement for an expense, etc.). That extra income is balanced by the higher expense (because you didn't credit it, it is higher), so the net income at the end of the day is the same. They said it especially makes sense if the transactions aren't in the same period (a refund this month for something paid four months ago). You could potentially be crediting an expense account that doesn't have any other transactions this period (or not enough) and have a negative expense on the P&L.
at the end of the day, the net is the same but it's not the same.
The refund of any expenses because of overpayment should have been credited to the expenses that were debited originally: tax overpayment, rebate from vendor...

Rebate from vendor is a good example when compare recording as a debit to COGS (reduce COGS) as oppose to debit Other Income.

Although the net income in both cases are the same but the COGS, average cost of raw, gross profit margin are different.

you buy 5 pack of meat at the price of $10/ea, total COGS is $50.
sell it at $20/ea, total Revenue: $100, gross profit $50.
administration fee: $30
net income: $20.
average cost: $10/pack


Now, if you have rebate for $2 per pack, total rebate is $10.
let compare 2 methods:
1. credit to COGS:
total COGS: $40 = $50 - $10, average cost: $8/pack
total revenue: $100, gross profit: $60
admin fee: $30
net income: $30

2. credit to Other Income:
average cost: $10/pack, gross profit: $50
admin fee: -$30
rebate income: $10
net income: $30
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  #8  
Old 06-16-2017, 10:58 AM
Froid Froid is offline
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It depends

Uniz makes a great case for recording to the same account that originally absorbed the expense. Except, like BooksInVA touched on, if it came from a prior period, one may not want to do that. Taken a step further, if it came from three years prior, posting as an expense credit might only fool operations into thinking they did a great job reducing production costs.

So many nuances exist here. The CPA's guidance could be proper.
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  #9  
Old 06-16-2017, 03:45 PM
Lorin Browning Lorin Browning is offline
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BooksInVA posted in part: "The logic was that any money coming in is income (tax refund, refund from a vendor, rebate, reimbursement for an expense, etc.). That extra income is balanced by the higher expense (because you didn't credit it, it is higher), so the net income at the end of the day is the same."

There are at least two troublesome claims made:
  1. It simply is not the case that any money coming is income. For example, a loan proceeds is not income.
  2. Assuming that "the net income at the end of the day is the same" can have unexpected results. Some municipalities base business licenses on gross revenue. Recording a refund or loan proceeds as revenue unnecessarily can increase the cost of the annual license.
The Other Income account usually has two major functions:
  1. To record revenues or expenses that are not normally revenues or expenses from operations.
  2. To records revenues or expenses that are adjustment from prior, closed period.

In the initial example, the refund is from a payroll overpayment. Since payroll is a normal operating expense, one usually wants that payroll accounting totals to be as accurate as possible. For example, an annual payroll audit expects the payroll expenses and the submitted quarterly and annual reports to have the same totals. The exception, of course, is recording the refund for an expense that occurred in a prior, closed accounting or tax period.

IRS normally runs about one quarter is adjusting quarterlies or other reports. Assuming that the refund was for the first quarter of 2017 (which is likely given the time of the initial post), I assumed the refund was for the first quarter 2017. That assumption may not have been correct.
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Last edited by Lorin Browning; 06-16-2017 at 05:18 PM.
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  #10  
Old 06-17-2017, 04:46 AM
Rustler Rustler is offline
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Uniz in his cogs rebate example makes a good point, but we have to remember that is a Quickbooks User help forum.

The example assumes that all purchases are sold in the same period - QB holds inventory purchases as assets. If you use COGS to post the rebate and have not sold all the items associated with that purchase you are misstating COGS.

Since QB uses average cost, that makes it even more dicey. Was qty on hand zero when the "rebate" order was placed? has there been subsequent orders adding item asset value and qty?

Other Income seems right to me in light of the constraints of QB inventory.

Just like CC cash back, the theory is that each reward point lowers the cost of the reason behind the purchase, but those reward points accrue over time, a lot of time and a lot of purchases. Other income is the only reasonable solution here too.
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