BIZLEDGER guide
Invoice math: is the tax added or already included?
Many invoice mistakes come from one question: is the price before tax, or does it already include tax? The two cases need different arithmetic.
The price is before tax
Multiply quantity by unit price for each line, add the lines for the subtotal, then add tax on the subtotal. Example only: 3 hours at 40.00 is 120.00. Tax at 20 percent is 24.00. The total is 144.00.
The price already includes tax
Do not take the percentage off the total. At a 20 percent rate, divide the tax-inclusive price by 1.20 to get the net amount. Example only: a price of 120.00 including tax gives a net amount of 100.00 and tax of 20.00.
In this example, taking 20 percent off 120.00 would give 96.00, which is wrong, because the tax is 20 percent of the net amount, not of the total.
Rounding
Work in whole cents. Some places require rounding on each line and others on the invoice total, so two correct tools can differ by a cent. Use the method your tax rules require.
Check yourself
Net plus tax should equal the total. If it does not, one of the steps used the wrong base.
Common questions
Why does my total differ by a cent from another tool?
Usually rounding. One tool rounds each line and another rounds the total. Both can be right, so use the method your rules require.
Does the calculator know my local tax rate?
No. You enter the rate. It does the arithmetic only and is not tax or accounting advice.