MoneyWorks | Provision in base currency but pay out in foreign

Software: MoneyWorks accounting software

Assuming you did a provision in last financial year for the withholding tax of S$10,000.00 (Singapore dollar is the base currency), at the point of providing the provision you are not sure of the type of currency will be taxed or exact amount.

The double entry for this transaction is:

Debit Withholding tax expense (Expense account): 10,000.00

Credit Provision for withholding tax (Current Liability): 10,000.00

Now, in this financial year, you are told to pay your withholding tax in US dollar (foreign currency) of 6,800.00.

Your provision is in base currency but now the pay out is in foreign currency, how to record the transactions in MoneyWorks accounting software?

First, you create the Withholding Tax agent as a foreign currency creditor; in this case will be USD. Then, create a payment transaction to pay Withholding Tax agent of US$6,800.00 from your USD Bank account.

Assuming the exchange rate is set as 1 SGD : 0.84 USD, the double entry for this transaction will be:

Debit Provision for Withholding tax: 6,800.00

Credit USD Bank account: 6,800.00

Debit Provision for Withholding tax: 1,295.24

Credit USD Bank account (Currency delta): 1,295.24

From your Balance Sheet report, there will be a balance of S$1,904.76 (10,000.00 – 6,800.00 – 1,295.24) in your Provision for Withholding Tax account. This amount is an over provided amount, which you need to pass a journal to bring it back into your Withholding Tax expense account.

The Journal entry will be:

Debit Provision for Withholding Tax account: 1,904.76

Credit Withholding Tax expense account: 1,904.76

Now, refresh your Balance Sheet report, the Withholding Tax account will be zero in balance.

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