Tax Audit — Complete User Guide — Two Accounts Web

Comprehensive guide for generating, analysing, and understanding the Tax Audit report — a cross-tabulation of every GL account against every Tax Code, showing the tax impact of each account

Table of Contents

1. What Is the Tax Audit Report?
   • Structure
2. Enabling from the Customize Menu
3. Field-by-Field Guide
   • Report Header Fields
4. Settings Configuration
   • Tax Codes
   • Tax Payable Account
5. Creating a Tax Audit Report
6. How the Tax Audit Is Calculated
   • Transaction Loading
   • Account × Tax Code Matrix
   • P&L and BS Sections
   • Sign Convention
7. Drill-Down Capabilities
8. Sample Data and Report Output
   • Sample Setup
   • Tax Audit Output
   • Verification of Calculation
9. Common Issues and Solutions
10. Accounting Regulation Compliance

1. What Is the Tax Audit Report?

The Tax Audit report is a cross-tabulation (pivot table) that shows every General Ledger account alongside every Tax Code used in transactions. For each account, it shows how much of the account's activity was subject to each tax rate, and how much was untaxed.

This is the most comprehensive tax report in the system — it gives auditors and tax professionals a complete view of which accounts are generating taxable transactions and which tax codes are being applied.

1.1 Structure

The report has a matrix layout:

• Rows — every GL account in the Chart of Accounts (Profit and Loss first, then Balance Sheet)
• Columns — "No Tax" (for untaxed amounts) plus one column per Tax Code used in the selected period
• Values — the sum of base currency amounts for each account × tax code combination, shown in Debit/Credit format

2. Enabling from the Customize Menu

The Tax Audit report appears under:

• Reports → Tax Codes → Tax Audit

The report is only visible when at least one Tax Code has been created in Settings. Once a Tax Code exists, the report appears automatically. No toggle in Customize Menu is needed.

3. Field-by-Field Guide

3.1 Report Header Fields

Location: Reports → Tax Codes → Tax Audit → New Report

4. Settings Configuration

4.1 Tax Codes

Location: Settings → Tax Codes

Tax Codes define the sales tax / VAT rates and rules used by the business. They are the foundation of the Tax Audit report — each Tax Code becomes a column in the report.

Tax Rate Types and Their Impact on the Tax Audit

The Tax Rate field determines how the system calculates tax and how it appears in the Tax Audit report:

4.2 Tax Payable Account

Location: Settings → Chart of Accounts → Balance Sheet → Tax Payable

The Tax Payable account is the default liability account that receives tax amounts from invoices with Tax Codes. It appears under Liabilities on the Balance Sheet. Each Tax Code can optionally specify a different account if custom tax liabilities are needed.

5. Creating a Tax Audit Report

1. Ensure at least one Tax Code exists in Settings → Tax Codes
2. Go to Reports → Tax Codes → Tax Audit
3. Click New Report
4. Enter a Description (optional)
5. Enter the From Date and To Date
6. Choose the Accounting Method — Accrual or Cash Basis
7. Click Save
8. The report generates showing the matrix of accounts × tax codes

6. How the Tax Audit Is Calculated

6.1 Transaction Loading

The system loads all General Ledger transactions within the period and calculates Cost of Goods Sold. If Cash Basis is selected, sales and purchase invoices are matched to their corresponding receipts and payments, converting accrual amounts to cash basis.

6.2 Account × Tax Code Matrix

The core data structure is a two-level dictionary:

Matrix[GL Account Key][Tax Code Key] = Sum of Base Amount

Level 1 key: The General Ledger account (e.g., "Sales Revenue", "Accounts Receivable")
Level 2 key: The Tax Code applied (or empty Guid for untaxed amounts)
Value:       Sum of all transaction amounts in base currency for that combination

Every transaction in the period contributes to exactly one cell in this matrix. The combination of (GL Account, Tax Code) determines which cell.

6.3 P&L and BS Sections

The report is organised in two sections, following the Chart of Accounts hierarchy:

• Profit and Loss section — income and expense accounts appear first
• Balance Sheet section — assets, liabilities, and equity accounts appear second

Within each section, accounts are grouped by their group hierarchy (e.g., Income → Sales Revenue, Expenses → Salary Expense). Each account becomes a row, and each Tax Code becomes a column. Empty cells mean that account had no transactions with that Tax Code.

6.4 Sign Convention

Amounts are shown with the Debit/Credit number style:

• Positive amounts — displayed as "XXX Dr" (debit balance — typically expenses, assets)
• Negative amounts — displayed as "XXX Cr" (credit balance — typically income, liabilities, equity)

Examples:

7. Drill-Down Capabilities

Each cell in the report is clickable. Clicking any amount opens a detailed transaction viewer showing the individual transactions that make up that cell's total.

Each drill-down view displays:

• Date — the transaction date
• Transaction — the document type and reference
• Customer/Supplier — counterparty information
• Description — transaction narrative
• Tax Code — the tax code applied
• Amount — the base currency amount

8. Sample Data and Report Output

8.1 Sample Setup

A trading company uses three Tax Codes: VAT-15 (15% standard rate for domestic sales), VAT-5 (5% reduced rate for services), and ZERO (0% zero rate for export sales). The following transactions occurred during January 2026:

Tax Codes Defined

Opening Balances (1 January 2026)

Transactions During January 2026

8.2 Tax Audit Output

The report cross-tabulates every GL account against every Tax Code used in the period. Each cell shows the sum of base currency amounts for that account × tax code combination, displayed in Debit (Dr) / Credit (Cr) format.

Tax Audit — ABC Trading
For the period: 1-Jan-2026 to 31-Jan-2026
                          No Tax     VAT-15      VAT-5      ZERO
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
PROFIT AND LOSS

INCOME
  Sales Revenue                   300,000 Cr          200,000 Cr
  Service Revenue                            100,000 Cr

EXPENSES
  Salary Expense          60,000 Dr
  Rent Expense            15,000 Dr
  Consulting Expense                50,000 Dr

BALANCE SHEET

ASSETS
  Cash at Bank            45,000 Dr
  Accounts Receivable    200,000 Cr  345,000 Dr  105,000 Dr  200,000 Dr
  Inventory                                    100,000 Dr

LIABILITIES
  Accounts Payable        80,000 Dr   57,500 Cr  105,000 Cr
  Tax Payable                         37,500 Cr         0

EQUITY
  Capital Account              —
  Retained Earnings            —

Validated Against GL

8.3 Calculation

TAX CALCULATION:
  VAT-15 (Custom Single Rate 15%):
    Output:    Sales Revenue 300,000 × 15% = 45,000 Cr (Tax Payable) ✓
    Input:     Consulting Exp 50,000 × 15% = 7,500 Dr (Tax Payable) ✓
    Net:       45,000 Cr − 7,500 Dr = 37,500 Cr ✓

  VAT-5 (Custom Single Rate 5%):
    Output:    Service Revenue 100,000 × 5% = 5,000 Cr (Tax Payable) ✓
    Input:     Inventory 100,000 × 5% = 5,000 Dr (Tax Payable) ✓
    Net:       5,000 Cr − 5,000 Dr = 0 ✓

  ZERO (Zero Rate 0%):
    No tax calculation needed — full 200,000 goes to Sales Revenue ✓

  Net Tax Payable: 37,500 Cr ✓

VERIFIED:
  Sales Revenue × VAT-15:       300,000 Cr ✓
  Sales Revenue × ZERO:        200,000 Cr ✓
  Service Revenue × VAT-5:     100,000 Cr ✓
  Salary Expense × No Tax:      60,000 Dr ✓
  Rent Expense × No Tax:        15,000 Dr ✓
  Consulting Expense × VAT-15:  50,000 Dr ✓
  Cash at Bank × No Tax:        45,000 Dr ✓
  Accounts Receivable × No Tax: 200,000 Cr ✓
  Accounts Receivable × VAT-15: 345,000 Dr ✓
  Accounts Receivable × VAT-5:  105,000 Dr ✓
  Accounts Receivable × ZERO:   200,000 Dr ✓
  Inventory × VAT-5:            100,000 Dr ✓
  Accounts Payable × No Tax:    80,000 Dr ✓
  Accounts Payable × VAT-15:    57,500 Cr ✓
  Accounts Payable × VAT-5:    105,000 Cr ✓
  Tax Payable × VAT-15:        37,500 Cr ✓
  Tax Payable × VAT-5:               0 ✓

DR = CR VERIFICATION:
  SI #1001 (VAT-15): Dr AR 345,000 = Cr Revenue 300,000 + Cr Tax 45,000 ✓
  SI #1003 (ZERO):   Dr AR 200,000 = Cr Revenue 200,000 ✓
  SI #1002 (VAT-5):  Dr AR 105,000 = Cr Service Rev 100,000 + Cr Tax 5,000 ✓
  PI #2001 (VAT-5):  Dr Inventory 100,000 + Dr Tax 5,000 = Cr AP 105,000 ✓
  PI #2002 (VAT-15): Dr Consulting 50,000 + Dr Tax 7,500 = Cr AP 57,500 ✓
  Receipt:           Dr Cash 200,000 = Cr AR 200,000 ✓
  Payment:           Dr AP 80,000 = Cr Cash 80,000 ✓
  Salary:            Dr Salary 60,000 = Cr Cash 60,000 ✓
  Rent:              Dr Rent 15,000 = Cr Cash 15,000 ✓

  All tax entries properly tagged with respective TaxCode ✓
  Zero-rated sales correctly shown in ZERO column (not No Tax) ✓
  Each account × TaxCode combination verified ✓

9. Common Issues and Solutions

9.1 No Tax Columns Appear

Cause: No transactions were found with a Tax Code applied within the selected date range, or no Tax Codes exist in the system.

Solution: Verify that Tax Codes are defined in Settings → Tax Codes. Check that invoices have been created with a Tax Code selected on the line items. The Tax Audit report only shows columns for Tax Codes that actually appear in the period's transactions.

9.2 Account Shows in the Wrong Section

Cause: The Tax Audit report follows the same Chart of Accounts hierarchy as the Balance Sheet and P&L. If an account's Group assignment is incorrect, it appears in the wrong section.

Solution: Go to Settings → Chart of Accounts and check the account's Group assignment. P&L accounts should be under P&L groups; BS accounts should be under BS groups.

9.3 Tax Payable Account Shows Unexpected Balance

Cause: The Tax Payable account accumulates all output VAT (credits from sales invoices) and input VAT (debits from purchase invoices). The net balance = output VAT collected minus input VAT paid. If input VAT exceeds output VAT, the account shows a debit balance (recoverable position).

Solution: This is correct. A credit balance means you owe tax to the authority. A debit balance means you have recoverable input tax. Each Tax Code column shows the net position for that specific rate.

9.4 Cash Basis vs Accrual Basis Differences

Cause: Under Accrual Basis, tax is recognised when the invoice is issued. Under Cash Basis, tax is recognised when the cash is received or paid.

Solution: Generate the report with both methods and compare. Significant differences may indicate timing gaps between invoicing and payment. Use Accrual Basis for VAT return preparation; use Cash Basis for cash flow analysis.

9.5 "No Tax" Amounts for Exempt Transactions

Cause: Transactions without a Tax Code assigned fall into the "No Tax" column. This includes salaries, rent, capital transactions, and any invoice lines where no Tax Code was selected.

Solution: This is expected. The "No Tax" column shows the portion of each account's activity that is outside the scope of VAT or where no tax code was applied. For complete tax reporting, ensure all taxable transactions have a Tax Code assigned.

9.6 Zero-Rate Tax Code Shows as Column

Cause: If a Tax Code with Tax Rate = Zero Rate is used on transactions, it appears as a column even though the tax amount is zero. The column shows the net transaction amounts that are zero-rated.

Solution: This is correct. Zero-rated supplies should be reported separately from exempt supplies (No Tax) in many tax jurisdictions. The "Zero Rate" Tax Code column distinguishes these.

10. Accounting Regulation Compliance

10.1 IAS 12 — Income Taxes

10.2 IFRS 15 — Revenue from Contracts with Customers

10.3 NBR VAT Act 2012 (Bangladesh)

10.4 DR = CR Verification

DR = CR VERIFICATION:
  SI #1001 (VAT-15): Dr AR 345,000 = Cr Revenue 300,000 + Cr Tax 45,000 ✓
  SI #1003 (ZERO):   Dr AR 200,000 = Cr Revenue 200,000 ✓
  SI #1002 (VAT-5):  Dr AR 105,000 = Cr Service Rev 100,000 + Cr Tax 5,000 ✓
  PI #2001 (VAT-5):  Dr Inventory 100,000 + Dr Tax 5,000 = Cr AP 105,000 ✓
  PI #2002 (VAT-15): Dr Consulting 50,000 + Dr Tax 7,500 = Cr AP 57,500 ✓
  Receipt:           Dr Cash 200,000 = Cr AR 200,000 ✓
  Payment:           Dr AP 80,000 = Cr Cash 80,000 ✓
  Salary:            Dr Salary 60,000 = Cr Cash 60,000 ✓
  Rent:              Dr Rent 15,000 = Cr Cash 15,000 ✓

End of Tax Audit Guide