INCOME AND SALES TAXES, AND OTHER DERIVED TAX REVENUES (3)
While the measurable criterion can usually be met by effective use of accounting estimates, the available criterion is more direct. For reporting on the modified accrual basis of accounting, some governments choose to use the same sixty-day criterion used for property taxes collected after year-end for determining the amount of these revenues that should be considered available. Before adopting this general rule, the government should ensure that the tax relates back to the fiscal year for which the estimate is being made. For example, sales tax returns are often due monthly following the month of the sale. Assume that a government with a June 30 year-end requires sales tax returns
to be filed and taxes remitted by the twentieth day of the month following the date of the sales. In this case, sales taxes remitted with the July 20 sales tax returns would relate to sales in June and would appropriately be accrued back to the fiscal year that ended June 30. However, the sales taxes remitted with the August 20 sales tax returns would relate to sales in July of the new fiscal year and would not be accrued back to the fiscal year that ended on June 30, despite being collected within sixty days of the June 30 year-end.
In addition to accruing revenues for taxpayer-assessed taxes, governments must make the appropriate liability accruals for refunds that they are required to make based on tax returns that are filed. Governments generally use actual refunds made after the fiscal year-end, combined with estimates for refunds made using a combination of historical experience and information about the economy of the fiscal year reported. Tax refunds are likely to be a liability to be liquidated with current financial resources, and accordingly, a fund liability is recorded. The liability will also be recorded in the government-wide financial statements. Netting the tax refunds with the related tax revenues also provides a more accurate picture of the amount of tax revenues that should actually have been recorded by the government.
Taken From : Governmental Accounting Made Easy