Include Tax or Charge in Valuation or Total?
Consider the Tax or Charge field in the Taxes and Charges table of purchase or sales transactions has three values.
Total
Valuation
Total and Valuation
Let's consider an example to understand the effect of each charge type. We purchase ten units of items, at the rate of 800. The total purchase amount is 800. Purchased item has 4% VAT applied on it, and USD 100 was incurred in transportation.
Total:
Tax or Charge categorized as Total will be included in the total of purchase transactions. But it will not have an impact on the valuation of items purchased.
If VAT 4% is applied on an item, it will amount to USD 32 (at item's base rate is 800). Since VAT is the consumption tax, it should be added to the value of Purchase Order/Invoice, since it will be included in payable towards the supplier. But it should not be added to the value of the Purchased item.
When Purchase Invoice is submitted, general ledger posting will be done for tax/charge categorized as Total.
Valuation:
Tax or charge categorized as Valuation will be added to the value of the purchased item, but not in the total of that purchase transaction.
Transportation charge of USD 100 should be categorized as valuation. With this, the value of purchased items will be increased from 800 to 900. Also, this charge will not be added to the total of purchase transaction, because it is your expense, and should not be reflected to the supplier.
Total and Valuation:
Tax or Charge categorized as for Total and Valuation will be added in the valuation of item, as well as in the totals of purchase transactions.
Let's assume that transportation is arranged by our supplier, but we need to pay transportation charges to them. In that case, for transportation charges, the category selected should be Total and Valuation. With this, USD 100 transportation charge will be added to the actual purchase amount 800. Also, USD 100 will reflect in the total, as it will be payable for us towards the supplier.