How do I adjust an Accounts Receivable invoice that includes tax?
Description
Cause
Resolution

NOTE: This article addresses adjusting the work billed and tax amounts on an invoice. If you need to remove sales tax 100%, it is recommended that you void the invoice and re-enter with the correct tax group and exempt statuses.

When you adjust an invoice and the adjustment is distributed automatically, the distribution lines are adjusted from top to bottom. Since taxes are typically the last line in the distribution grid, they are not automatically adjusted.

If the invoice has any cash receipts applied, they may need to be unapplied before making the adjustments. Cash receipts are applied from the top distribution line down so can affect which distributions are available for adjusting and the only amounts left may be tax amounts. In order to adjust both tax and work billed, cash receipts will need to be unapplied. Make sure to use an accounting date for the unapply and reapply that is either a current date or the original cash receipt date as long as that date is available. Verify the original dates of the invoice and cash receipt in inquiry prior to making the adjustment in order to make an informed decision about the correct accounting dates. Make note of the unapply date as the unapply and reapply dates should be the same date. The adjustment date for the invoice may be a different date than the unapply/reapply. Make sure that the unapply/reapply date used is not before the original accounting date.

To adjust the taxes, manually distribute the adjustment to the tax distribution following these steps:

  1. Select Tasks, Adjust Receivables.
  2. Enter the customer in the Customer box and enter a date in the Accounting date box.
  3. Select All Activity in the View box.
  4. Select the invoice you need to adjust and click Adjust.
  5. In the Invoice Adjustment window, select the appropriate Adjustment type.
  6. Enter the same date you used in step 2 in the Adjustment date box.
  7. Under Adjustment, enter the amounts in the Amount and Retainage held boxes.
    Note: The amount entered in the Amount box includes the tax, invoice, and retainage amounts.
  8. Click Distributions and locate the distributions that have an Amount type of Total Billed.
  9. Change the amount that prefilled in the Amount and Retainage held boxes to be the correct amount that you want to adjust.
  10. Locate the distribution that has an Amount type of Tax.
  11. In the Amount box, enter the amount of the tax adjustment.
  12. In the Taxable box, change the amount to the amount of the invoice and retainage adjustment, less the tax adjustment amount. The amount in the Taxable box is the amount by which you want to reduce the taxable amount for the invoice.
    Note: For example, if you want to reduce a $10,000 invoice by $1,000 and $100 is the tax amount, enter $900. If you adjusted the entire tax amount in step 9 and you want to reduce the taxable amount of the invoice to $0.00, enter the original taxable amount. If you want to adjust the tax, but not the taxable, then clear the Taxable box so that it is not adjusted.
  13. Click Finish.

Note: Under some circumstances when following these steps, you may receive an error that the taxable amount cannot exceed the amount outstanding. Refer to the linked article below 'Error: The taxable amount cannot exceed the invoice amount' for steps and considerations.

DocLink: Error: "The taxable amount cannot exceed the invoice amount."
Defect ID
Steps to duplicate
Related Articles