Types of tax
Normal tax is calculated by the product of the tax rate for the net amount, the result is added to the net amount to determine the gross amount and is posted.
Example: Net amount: 100- this is posted
tax rate 20%
Tax amount: 20- this is posted
Gross amount:120- this is posted
On payments tax acts like a normal tax except that the amount of tax is posted in an interim account till the moment of payment/collection, when the system reverses the posting of the interim account and uses the tax sale/purchase account.
Shifted tax is calculated by the product of the tax rate for the net amount but it is not added to the net amount to determine the gross amount, instead, the tax amount is posted twice, in a normal sales/purchase account and in the contra account for sale/purchase tax.
Example: In a Supplier invoice
Tax amount :20
Net amount:100 Credit to supplier control account
Tax Purchase account:20 Debit
Contra account for Shifted Purchase tax: 20 Credit
Ledger account for "whatever":100 Debit