I buy a pair of socks for $5 and a hammer for $10 and sales tax of
$0.24 for a total $15.24.
There's a split transaction that comprises of three items:
Socks $5.00 makes an enter into the clothing account <----- that's
what I call split 1
Hammer $10.00 makes an entry into the tools account <------ that's
what I call split 2
Sales tax $0.24 makes an entry into the state sales tax account <-----
that's what I call split 3
Maybe that's not the correct accounting term but then again I'm not an
accountant. I'm just trying to track where I spend my money.
You are making a CHOICE as to what information you want your books to
provide. You are choosing to separate "sales tax" expense from "hammer
expense" instead of treating ALL you had to pay for a hammer as part of
the cost of a hammer.
PRO --- You may NEED to track the sales tax portion. Perhaps you are
itemizing on the 1040 and are in a jurisdiction with no local income tax
or you aren't paying local income tax, etc. << you pick which when
itemizing deductible expenses >> In other words, it is important for you
to know what you pay in sales tax even if this costs you other information.
CON -- You will be understating what tools cost you. You HAD to pay
sales tax when buying that hammer, part of the cost of getting that hammer.
THUS -- In my case, since even if I itemized (in years doing this) I
would be opting to deduct state/local income tax and not sales tax I
need sales tax totals far less than knowledge of "how much did you spend
buying tools" I would not split out sales tax.
Michael D Novack
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