If anyone has clients using Freshbooks, look out for funny accounting for GST/HST (or any other VAT based sales tax for that matter). The way it accounts for sales tax is very US centric.
Freshbooks will record GST/HST collected as a liability. However it will expense the GST/HST paid on expenses even though your clients entered the tax amount. What’s more bizarre is that the profit/loss statement excludes the “HST expense”. Only when you roll the retained earnings will it be apparent. I’m still trying to see what madness the report is doing.
Be very careful of this as you can get burned as it could result in not claiming any ITCs. You should catch it with the Sales tax report as that will correctly show the GST/HST and ITC, resulting in a net amount. But, this net will not equal the balance sheet amount. So effectively they have a sales tax report that doesn’t reconcile to the balance sheet (win!).
Support’s useless solution was to make a new custom account on the balance sheet and do a reclass out of P&L to the balance sheet. That’s a hackjob accounting process, but unfortunately prying my client off Freshbooks will cause more issues.
Anyway, look out for this one… Unless someone has already dealt with this and Freshbooks support is just useless.
Below is their useless response rather than fixing the problem:
Thanks for your patience, the account experts said that the sales tax liability will show up in the Balance Sheet, but sales tax paid does not - not all sales taxes are recoverable so we do not reduce the liability by the sales tax paid on the balance sheet. To view the sales tax paid you can refer to the General Ledger report for a breakdown and if you have a recoverable sales tax, you can use a JE to post the sales tax paid against the liability.
Did you have any questions regarding this?