Invoice / Tax ratio calculation
This example aims to improve the overall understanding of invoice calculations by explaining how revenue, discounts, and taxes are calculated and aggregated.
Important note
This is the calculation used in MC to display the total amount invoiced.
Table overview:
The table lists different items that either generate revenue or apply discounts. For each item, it shows the pre-tax amount, the tax rate applied, and the resulting tax amount.
| Item type | Value | Tax rate | Tax (Revenue) | Tax (Discount) |
|---|---|---|---|---|
| Revenue | $1,000.00 | 10% | $100.00 | |
| Revenue | $50.00 | 10% | $5.00 | |
| Revenue | $10.00 | 5% | $0.50 | |
| Discount | -$26.00 | -$2.59 | ||
| Discount | -$50.00 | -$4.98 |
Breakdown of Each Column
- Item type: Indicates whether the entry is a Revenue or a Discount.
- Value: The amount of money before tax is applied.
- Tax rate: The percentage of tax applied to the pre-tax amount.
- Tax : The actual amount of tax calculated.
Tax ratio
The tax ratio is a measure of the total tax amount as a percentage of the total revenue. It provides an insight into the overall tax relative to the revenue.
This is the method used to display the total amount in MC.
Sum of Revenue: Adding all pre-tax revenue amounts.
$1000 + $50 + $10 = $1060
Sum of Taxes: Adding all tax amounts for revenue.
$100 + $5 + $0.5 = $105.5
Tax ratio:
Sum of taxes / Sum of revenue
$105.5 / $1060 ≈ 9.95%
Discount Adjustment
Discounts might reduce the taxable amount, affecting the total tax:
- **-$26.00 with the associated tax ratio(**9.95%)
Tax Reduction = -$26.00 * 9.95%
Tax Reduction = -$2.59
- -$50.00 with the associated tax ratio (9.95%)
Tax Reduction = -$50.00 * 9.95%
Tax Reduction: -$4.98
Total tax reduction from discounts: -$2.59 + -$4.98 = -$7.57
Given the tax reduction, we need to adjust the total tax:
Total Original Tax:
$105.5
Total Tax Reductions:
−$7.57
Adjusted Total Tax:
$105.50 − $7.57 = $97.94
Final amount calculation
Now that we have the adjusted tax amount, to calculate the final amount we have to do:
Total = ( Sum of Revenue items - Sum of discount items ) + Adjusted total tax
Total = ( $1060 - $76 ) + $97.94
Total = $1,081.94