How are total taxes calculated using the rounding method in the accounting modules?
To check how total taxes calculated using the rounding method in Metro ERP's Accounting App, follow these steps:
1) Once logged in, navigate to the "Accounting" module by clicking on its icon in the main dashboard or by using the application menu.
2) Navigate to the accounting modules "Configurations >> Settings" menu.
3) Search for the rounding method in the search panel. This will show which rounding method is selected for your invoice records.
4) Round per Line:-
Description: This method rounds the tax amount for each line item individually.
How it works: For each product or service line in an order or invoice, the tax is calculated and then rounded. The rounded tax amounts are then summed up to get the total tax.
Example:
Line 1: $10.49 with a 5% tax rate -> Tax = $0.5245 -> Rounded to $0.52
Line 2: $20.75 with a 5% tax rate -> Tax = $1.0375 -> Rounded to $1.04
Total tax = $0.52 + $1.04 = $1.56
5) Round Globally:-
Description: This method calculates the tax for each line item and sums these amounts before rounding the total.
How it works: The tax is calculated for each line item, summed up, and then the total tax amount is rounded.
Example:
Line 1: $10.49 with a 5% tax rate -> Tax = $0.5245
Line 2: $20.75 with a 5% tax rate -> Tax = $1.0375
Total tax before rounding = $0.5245 + $1.0375 = $1.562
Rounded total tax = $1.56
6) Summary
- Round per Line: Rounds tax amounts for each line item individually, then sums them.
- Round Globally: Sums tax amounts for all line items first, then rounds the total
7) Example with Differences
Let's consider an invoice with two line items:
- Line 1: $9.99 with a 7% tax rate
- Line 2: $14.95 with a 7% tax rate
Round per Line
1) Line 1
- Tax = $9.99 * 7% = $0.6993 -> Rounded to $0.70
2) Line 2
- Tax = $14.95 * 7% = $1.0465 -> Rounded to $1.05
3) Total Tax:
- $0.70 + $1.05 = $1.75
Round Globally
1) Calculate Tax Before Rounding:
- Line 1 Tax = $9.99 * 7% = $0.6993
- Line 2 Tax = $14.95 * 7% = $1.0465
2) Sum Tax Before Rounding:
- $0.6993 + $1.0465 = $1.7458
3) Rounded Total Tax:
- $1.7458 -> Rounded to $1.75
In this case, both methods still result in the same total tax amount ($1.75). However, the difference becomes more pronounced with more line items and certain tax rates where rounding can cause discrepancies.
8) In our Metro system, the rounding is performed globally.
9) Here is an example, if you calculate the tax on 11.50 at 9%, it equals 1.035. However, in the Metro system, it is rounded to two decimal places, so it becomes 1.04.
To get more details on how total taxes calculated using the rounding method in Metro ERP? please do contact us at support@metrogroup.solutions