Include Tax or Charge in Valuation or Total?
In the Purchase or Sales transaction Taxes and Charges table, the "Consider Tax or Charge for" field (previously titled "Include Tax or Charge in Valuation or Total") determines whether a tax or charge is included in the Item Valuation and the Transaction Total.
There are three possible settings:
Total
Valuation
Total and Valuation
1. Example Scenario
Bought 10 units of an item, Rate = 800, hence base amount = 8000.
VAT @ 4% = 320
Transportation charges = 100
Now let's analyze how each choice performs.
1.1 Total
A charge that is denoted as Total is added to the transaction amount but does not impact the item valuation.
VAT @ 4% = 320
Because VAT is a tax on consumption, it must add to the supplier's payable but should never add to the price of the item.
General Ledger posting is performed for this type of tax/charge.
1.2 Valuation
A Valuation charge adds to the item valuation but is not included in the transaction amount.
Transportation cost = 100
Item value raises from 8000 → 8100
But this cost isn't to be paid to the supplier (if you incur it directly), so it is left out of the invoice amount.
This maintains accurate inventory valuation without overstating the supplier's liability.
1.3 Total and Valuation
A charge designated as 'Total' and 'Valuation' both impacts the transaction total and item valuation.
Transportation cost = 100, but the supplier bills it on the invoice.
Item value goes up from 8000 to 8100, and the total invoice also goes up by 100 since it's to be paid to the supplier.
Apply this when the supplier invoice contains the charge and it is to be included in your inventory cost as well.