A tax authority can require that the company must record sales taxes on prepayments from customers, although a sale has not been made. To set up sales tax on prepayments:

1. Click Accounts receivable> Parameters .

2. On the Ledger and sales taxtab, select the Sales tax on prepaymentcheck box. Sales tax is calculated and posted whenever a prepayment is posted.

3. In the Posting profile with prepaymentfield, enter a posting profile that defines the ledger account to which the sales tax transactions on prepayments are posted temporarily.

   Note
   You create a posting profile for this purpose in the Posting profiles form and specify the appropriate ledger account on the Setuptab in the Sales tax prepaymentsfield.

4. When you post a prepayment through a journal, select the Amount incl. sales taxcheck box.

   Important
   If you omit this step, the sales tax is not posted correctly.

When a sales invoice is created and the prepayment is settled, an automatic transaction on the sales tax prepayments account offsets the first temporary sales tax transaction.