ANSWER ID:9285

The Tax Information Reconciliation report displays a list of linked GST collected/paid accounts during a specified period, with one line displayed for each GST code associated with the account. If there are any inconsistencies, for example inappropriate transactions allocated to GST linked accounts, an "Out of Balance" figure will be displayed.

The report might be used as a supplement to the BAS completion. This report only displays figures for the current financial year, taking as the opening balance of tax code linked accounts their closing balances from the previous financial year (which it assumes have been paid or received).

If you want to create a Tax Information Reconciliation report from a previous financial year, do this from a backup copy of your previous financial year's company file.

This support note provides an overview of this report which will assist you to identify any reported out of balances.

The Tax Information Reconciliation report explained

The Tax Information Reconciliation report lists the activity totals of the various tax codes. For each tax code, this report will show the total amount.

The word activity refers to the audit trail of a tax code, ledger account, or any other reportable item. The activity of each tax code is then compared to the balance of its linked account. Ideally, the balance of the tax code activity and its linked account should be the same.

The following information describes the various components of the sample Tax Information Reconciliation report shown below.

A. Total

The tax code activity Total field represents the whole activity of that tax code for the filtered period. This total does not include a brought forward activity balance from the period prior to the report's filtered date. In contrast, the balance of a ledger account is ongoing, which includes a forwarding balance from previous periods, so the Actual Account Balance as at the filtered date includes transactions from a previous period. Because of this reporting 'anomaly', it is not unusual for the report to display an out of balance, which is illustrated in the example shown.

B. Expected Account Balance

This field represents the tax code activity total for the selected period; it's an expectation of the Actual Account Balance. Where more than one tax code is linked to a ledger account, the activities of all tax codes linked to that ledger account are consolidated to calculate the Expected Account Balance.

For liability accounts, Expected Account Balance =Total Tax Collected - Total Tax Paid

For asset accounts, Expected Account Balance =Total Tax Paid - Total Tax Collected

C. Actual Account Balance

This field is the closing balance of the tax code's linked account as at the filtered date of the report. Any variances between the Expected Account Balance and the Actual Account Balance are reported at the Out of Balance field.

D. Out of Balance

This field represents the difference between the Expected Account Balance and the Actual Account Balance.

The following image shows an account inquiry for the tax code's linked account filtered for the same period as the Tax Information Reconciliation report above.

Please note in the above image:

• The Expected Account Balance (B) equals the GST Goods and Services tax code activity Total (A) and the account inquiry Total Debits and Net Change fields (F).
• The Actual Account Balance (C) equals the account inquiry Ending Balance (G) which is the account's closing balance for the filtered period.
• The Out of Balance (D) equals the account inquiry Beginning Balance (E). From this, the effects of the tax code linked account's Beginning Balance or forwarding balance, can be seen. If the tax code's linked account's Beginning Balance was zero, the Tax Information Reconciliation report would balance.

What else can cause an out of balance in this report?

There are several things that can cause an out of balance in the Tax Information Reconciliation report. Each of these are explained in greater detail below.

• A timing difference between when the GST is remitted to the ATO and when the new BAS reporting period begins.
• Transactions that have been allocated directly to a tax code's linked account.
• The opening balance of the tax code's linked ledger account is incorrect.
• A tax code has had its linked account changed part-way through the reporting period.

A timing difference between when the GST is remitted to the ATO and when the new BAS reporting period begins

The GST remittance isn't due until 21 days after the end of the BAS period, so if the Tax Information Reconciliation report is filtered for the next BAS period, the Actual Account Balance will include the forwarding balance from the previous period. This causes the activity of the tax code linked account to appear overstated when compared to the Expected Account Balance. As a result of this, an out of balance is reported.

Transactions that have been allocated directly to a tax code's linked account

The closing balance of a tax code linked account consists of:

• Amounts posted to the account via the tax code(s) it is linked to; and
• Transactions that are allocated directly to the account.

If the activity of a tax code linked account consists of amounts allocated to it via a tax code only, then the closing balance (Actual Account Balance) of that account must equal that tax code's activity Total. Additional transactions that are directly allocated to a tax code linked account will affect that account's activity. These introduced amounts will be reflected in the accounts closing balance (Actual Account Balance), so the Actual Account Balance will no longer equal the Expected Account Balance.

With the exception of recording your payment to or refund of GST to the ATO (the GST remittance transaction), you should not allocate transactions directly to the GST Collected or GST Paid account number.

The opening balance of a tax code's linked account is incorrect or has been changed

The setup process requires that the opening balances of your general ledger accounts be entered. Specifying an incorrect opening balance for a tax code linked account will ultimately affect the Actual Account Balance of that account.

After reviewing your ledger account opening balances, the correct amounts can be entered: Go to the Setup menu, choose Balances and click Account Opening Balances. Scroll down until you are able to identify your tax code linked accounts, then enter the correct opening balances.

If your company file has been in use for some time, and you suspect that the tax code linked account opening balances have been altered, restore a backup of your company file that you know has the correct opening balances. Note the opening balances in the restored company file and then correct them in your current working company file.

A tax code has had its linked account changed part-way through the reporting period

The Tax Information Reconciliation report is categorised by the tax code linked accounts, so the tax code linked accounts are used as report sub-headings, under which the associated tax code(s) activity is listed.

Where a tax code's linked account has been changed, and that change is within the report's period, the tax code's entire activity for that period is reported against the account it is currently linked to. As only a portion of the tax code's activity was actually posted to it's current linked account, an out of balance for the account will be reported.

To determine if the tax code linked account has been changed:

1. Restore a backup of your company file from when the last BAS was reported.
2. Using the restored company file, design the tax code List report to include the report items: Tax Collected and Tax Paid. This will display the linked accounts for each tax code.
3. Display and print this tax code List report and then compare it with the same report produced from your current working company file. Comparing these two reports will allow you to identify any tax codes that have had their linked accounts changed.

The GST remittance transaction is directly allocated to the tax code linked accounts, so won't this cause an out of balance?

The GST remittance transaction is the only transaction that should be allocated directly to a tax code linked account. Other entries, such as error reversals, will create a permanent out of balance in the Tax Information Reconciliation report.

The GST remittance transaction literally reverses the amounts that have been posted, via the tax codes, to the tax code linked accounts. If the GST remittance transaction is dated for the end of the GST reporting period, the tax code linked accounts would have a zero Beginning Balance (refer Account Inquiry report) for the next reporting period. However, other transactions incorrectly allocated directly to a tax code linked account are never cleared with a reversing entry. These types of transactions will always be present in the account's Beginning Balance, creating a permanent out of balance in the Tax Information Reconciliation report.

As the Account Inquiry report lists all transactions allocated to a general ledger account, it can be used to find/identify transactions that have been allocated directly to a tax code linked account. To use this report:

1. Go to the Accounts command centre and click Find Transactions.
2. Click the Search By drop down arrow and select Account. Click the adjacent account field drop down arrow and select the relevant tax code linked account.
3. Enter the required date range in the date fields and then press the key.

Any suspect transactions can be opened by clicking the zoom arrow next to that transaction.

If you need to make any error adjustments to your tax code linked accounts, please refer to our support note titled General journal entries or contact MYOB Technical Support.

Can my tax code linked accounts be cleared at the end of the GST reporting period, allowing the Tax Information Reconciliation report to balance for the following period?

A tax code linked account's Ending Balance from a previous BAS reporting period causes the majority of out of balances. For instance, filtering the Tax Information Reconciliation report for 1 August 2014 to 31 August 2014 will include the tax code linked account's forwarding balance (Ending Balance) from July. This is unless the GST remittance transaction for July is dated 31 July 2014.

Dating the GST remittance transaction for 31 July 2014, will reverse the amounts posted to tax code Linked accounts via the tax codes for the July period. This will remove the tax code linked account's forwarding balances for August, correcting the out of balance in the Tax Reconciliation report.

The tax code linked accounts can be cleared at the end of a reporting period by using a holding/clearing account with chequebook privileges. For information on setting up and using chequebook accounts, please refer to our support notes Setting up and using cheque and credit card accounts and Setting up cheque and credit card accounts - older versions.

1. Complete your BAS using BASlink.
2. After completing BASlink, click the Transaction button and print the sample transaction.
3. Go to the Banking command centre and click Spend Money. In BusinessBasics go to the Command Centres menu and choose Banking then choose Spend Money.
4. Enter the GST remittance transaction as per the BASlink sample transaction. Set the date for the last day of the reporting period. Also, select the holding/clearing account previously set up in the Account field at the top left hand corner of the Spend Money window.
5. Click Record.

The Ending Balance of the tax code linked accounts will now be zero for that BAS period. The Tax Information Reconciliation report will now balance when filtered for the next BAS reporting period.

When the GST remittance is due to be paid to the ATO, record a payment from your cheque account to reimburse the holding account. This transaction will represent the actual payment to the ATO.

1. Open Spend Money and select your working cheque account in the Account field.
2. Enter the holding/clearing account in the Allocation Account field and apply the N-T tax code.
3. Enter the amount owed to the ATO in the Amount field. Date the cheque as per the date of the actual cheque payment.

If a GST credit is due, use Receive Money rather than Spend Money.

Note: Using the above method of clearing the tax code linked accounts will cause the Tax Information Reconciliation report to be out of balance if filtered for that cleared BAS reporting period. This is because the Ending Balance of the tax code linked accounts, for that period, will be zero as their balances have been transferred to the clearing account. However, the Expected Account Balance will still be reporting the tax code activity Total for that period.

Related support notes

Using BASlink

Recording an ATO payment or credit

Accounting for GST Instalments Paid: BAS Option 3

Reconciling your BAS and checking for errors