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Alexandre Demers

Tax incorrectly calculated?

SUGGESTED
Posted By

For an invoice that has the following items:

  • Item A @ 359.88$
  • Item B @ 203.88$
  • Item C @ 119.88$

the total is 683.64$.

If I apply a 5% tax to every item, here's what Sage is doing:

  • Item A @ 359.88$  x  5% = 17.994$, Sage rounds it at 17.99$ (0.004 is lost)
  • Item B @ 203.88$ x 5% = 5.994$, Sage rounds it at 5.99$ (0.004 is lost)
  • Item C @ 119.88$ x 5% = 10.194$, Sage rounds it at 10.19$ (0.004 is lost)

Now, Sage adds up all of the their calculated tax amounts: 17.99$ + 5.99$ + 10.19$ = 34.17$

But, if we keep the fractions of cents, the real amount should be: 34.182$, rounded to 34.18$.

Also, simpler: adding all of the items amount and then calculating the 5% tax on the total gives the same results as 34.182$, rounded to 34.18$.

So, we lose 1 cent in this example with Sage's calculations.

I bring this up because this was a real-world example of an invoice generated with Stripe (which charged the customer) and which doesn't match what Sage calculates, which brings complexity with our financial department. We need to adjust the certain invoices where the taxes are incorrectly calculated.

Is this a bug, or I'm doing something wrong?

I have attached a screenshot of an example invoice with this example.

  • 0
    SUGGESTED

    Hi  ,

    Thank you for your detailed message and the example provided regarding tax calculation discrepancies.

    From your description, it appears that Sage is calculating tax on each item individually and then summing those amounts, which due to rounding on each line, results in a slight discrepancy from what would be expected if the tax was calculated on the total amount.

    This rounding issue is actually a common occurrence in accounting software, as tax calculations are typically performed on a per-line basis to ensure accuracy for each item, especially when different items may be taxed at different rates. 

    While I couldn't find a specific article addressing rounding errors directly, Sage Accounting does allow for modifications to invoices. If you find that the tax calculation does not match the amount charged to the customer (for example, as you noted, through a payment processor like Stripe), you can adjust the invoice to reflect the correct tax amount. Here's what you can do:

    1. If the invoice is unpaid, you can directly edit the invoice to adjust the tax amount.
    2. If the invoice is paid, you may need to unallocate the payment, adjust the invoice, and then reallocate the payment.

    It's important to note that these adjustments should be made carefully to ensure that your financial records remain accurate and that such adjustments are in compliance with local tax laws.

    Considering that this discrepancy is affecting your financial reporting, it would be advisable to discuss this with your financial department to determine the best course of action. If necessary, it might be worth reaching out to Sage support or consulting with a tax professional to ensure that any adjustments made are compliant with accounting standards and tax regulations.

    If you find that this rounding issue is a consistent problem, you might also want to provide feedback to Sage for a potential feature update, as they might consider offering an option to calculate tax on the total amount to avoid such discrepancies in future updates. Hope this helps!

    Warm Regards,
    Erzsi

*Community Hub is the new name for Sage City