Before knowing the journal entries, I am again explaining
VAT. VAT is value added tax. India is adopting VAT formula from western
countries. Before this, sale tax was collected. Value added tax is charged on
purchase and sale. On purchase, it will be VAT input. On sale, it will be VAT
Output. Excess of VAT output over VAT input will deposit in state Govt.
account. If you are buying or selling the Good which are under VAT, you have to
keep its record.
For recording, you have to pass following journal entries of
VAT.
1. When Goods are bought and you have to pay
both purchase value and VAT input or paid both, at that time, following journal
entry will be passed.
Purchase Account Dr.
(Value of Purchase)
VAT Input Account Dr. ( VAT on Purchase)
Cash or Bank or Name of Creditor Account Cr. (Value of
Purchase + VAT input)
Reason of this
Journal Entry :
We have bought the goods, it increases our current asset. Increase of asset will always debit. VAT input is also our current Asset or Negative Current Liability because We paid this to our creditor or supplier (for paying govt.) but still our net liability has not been fixed. If we received VAT output same to VAT input, then VAT Input account will automatically written off. If VAT input will be more than VAT Output, we have to Get money from Govt. So, VAT input account will be Debit. If we are final consumer, we need not show the VAT Input account, its cost will be included in purchase account. So, purchase expense will increase and debit in our journal entry.
We have bought the goods, it increases our current asset. Increase of asset will always debit. VAT input is also our current Asset or Negative Current Liability because We paid this to our creditor or supplier (for paying govt.) but still our net liability has not been fixed. If we received VAT output same to VAT input, then VAT Input account will automatically written off. If VAT input will be more than VAT Output, we have to Get money from Govt. So, VAT input account will be Debit. If we are final consumer, we need not show the VAT Input account, its cost will be included in purchase account. So, purchase expense will increase and debit in our journal entry.
2. When Goods are Sold and you have to receive
both Sale Value and VAT Output or received both, at that time, following
journal entry will be passed
Cash or Bank or Name of Customer Account Dr. (Value of Purchase + VAT output)
Sale Account Cr. (Value of Sale)
VAT Output Account Cr. (VAT on Sale)
Reason of this
Journal Entry :
When we sell any goods we receive cash or bank. If we sell
the goods on credit, we have to get money from our customer. So, Receivable
money from our customer is just like given loan. So, it is also increase of our
current asset. So, in case of cash sale, we will debit cash or bank account. In
case of credit sale, we will debit to debtor or customer account. We will
credit to sale account because in sale, we transfer the ownership of goods to
other party. So, it is decrease of our current asset. So, sale account will be
credit. All the amount of VAT which we will receive on sale will not go to our
pocket. It is the money of Govt. Because Govt. can not get the money of tax
from each part, so, we have obtained the tax on the behalf of Govt. So, it is
increase in our current liability. So, this account will credit.
3. When We pay the Net VAT (Payable) to
Government. At that time, following journal entry will be passed.
Net VAT Payable Account Dr. ( Excess of VAT Output over VAT
Input)
Bank Account Cr.
Reason of this Journal Entry :
When we will debit VAT Payable
account, it means, we are decreasing our current tax liability. Every payment
through bank account will decrease our current asset, so bank account will
credit. We have to show only excess of VAT output over VAT Input because the
VAT which we have to pay already through purchasing need to pay again. So, we
will deduct VAT input from VAT output.
4. When there is the Change in VAT input or
VAT output Rates, at that time following Entry will be passed.
I have already explained that State Govt. can change the VAT
Rates and its applying date. So, if you have passed the journal entries with
old rate, you need to adjust your VAT Entries. Different accounting software
have different procedure to adjust it more fastly, you can learn the procedure
at here.
Adjustment journal entry will be different, if we have different case. Means,
VAT input same but increased VAT Output. Or VAT input increased but same the
VAT Output. If both VAT input and VAT out has increased. Following is its
example
Because VAT is increased from 4% to 5%. It means net increase in
input vat is only 1%. Total purchase is Rs. 1000. Total purchase's 1% is
Rs. 10 and surcharge is 10% which is calculated on Rs. 50 and it will be Rs. 5.
So, total value of vat increase is Rs. 15.
It means our (creditors) current liability will increase. So,
VAT input account Dr. 15
Creditor Account Cr. 15
Accept the voucher entry.
Pass next voucher entry for adjusting vat output.
Because VAT Out is
increased from 4% to 5%. It means net increase in Output vat is only 1%. Total
sale is Rs. 2000. Total sale's 1% is Rs. 20 and surcharge is 10% which is
calculated on Rs. 100 and it will be Rs. 10. So, total value of vat increase
is Rs. 20+ 10 = Rs. 30
It means our (debtors) current asset will increase. So,
Debtor Account Dr. 30
Output VAT Account Cr. 30
Difference between VAT output and VAT input is Rs. 15 and if we
pay this Rs. 15 to Govt. following entry will pass.
VAT Payable Account Dr. 15
Bank Account Cr. Rs. 15
Remind Above Journal Entries Again
very simple n well explained...Thanks a ton...
ReplyDeleteIts been very informative, thanks aton for your kind help
ReplyDeleteYour are right. We can also say that the VAT payable to the revenue authority is VAT output - VAT input. It can also be referred to as NET VAT.
ReplyDeleteExcellent explaination........
ReplyDeleteI learned new things in accounts
Sir plz tell online accounting work I can do at my home?????
Nice explanation. This will be helpful for me...:)
ReplyDeletevery well explained
ReplyDeleteWELL EXPLAINED
ReplyDeleteExcellent!! Good work!! I want to buy E- book, could you please tell me main contents of this book.
ReplyDeleteAnd d case where input vat is in excess of output, then ??
ReplyDeleteIf we want to deposite some rs as a advance tax. What will be entry in our books
ReplyDeletenice one sir
ReplyDeleteNice Explanation
ReplyDeleteNice and simple explanation
ReplyDeleteNice work Bro. Thanks
ReplyDeleteThank you for explaining coherently this topic. However, I have a question with regards to the Return for both Sales and Purchases. Would it be reasonable for me to make an entry like this, i.e. debiting "Output VAT" account:
ReplyDelete(Dr) Sales Returns
(Dr) Output VAT
(Cr) Accounts Receivable
Thank you.
No🤣
Deleteinput tax under duties and tax and out put tax under the same it shown in p/l or balance sheet
ReplyDeleteSir, I am beginner,
ReplyDeleteI have clearly understood the journal entries of VAT input and VAT output. We know that VAT input is asset and VAT output is Liability, we just only pay the difference. My question is under which head of account the VAT entry can be posted?
Very informative thanks for sharing about VAT.
ReplyDeleteVAT Consultants in UAE
how do i account for VAT when there is a sales returns
ReplyDeletewhat about the co-roperation tax
ReplyDeleteHow can i pass entry for bank charge like cheque issue charge
ReplyDeletevat payable (Current Liabilities) is clear the liabilities. vat payable is not a expenses? is this correct?
ReplyDeletewhen we pay vat to government thae vat payable account comes under liablity or expense?
ReplyDeleteLiability
DeleteHow do I treat VAT paid to the government. When the the seller failed to charge Vat on sales but paid VAT on purchases
ReplyDeleteWe have returned Materials to Supplier. How to record the Journal for Tax Credit note. Please clarify
ReplyDeleteWe have returned the purchased material to supplier. how can we record journal entry with VAT. Please clarify
ReplyDeletehi, what about purchased returns VAT exclusive.
ReplyDeleteif have vat on rent how will apply journal entry ?
ReplyDeleteI am new to VAT, just have a confusion
ReplyDeleteOn credit purchase let's say we pass the entry
Purchase 95 dr
Vat 5 dr
Party 100 cr
The payment has not been made yet, or made partially, still we have to take the full vat or vat should be entered in payment entry
Well explained
ReplyDeleteTHANK YOU MUCH FOR THIS EXPLANATION ON VAT IS VERY CLEAR
ReplyDeleteHi, How to record a Non Vat registered company invoice in VAT registered company?. company is with in the country only. Is RCM applicable?
ReplyDeleteHello Sir, Can you please suggest entry of Bank charges with VAT. It is not showing in VAT SOA purchase and Sales this type of expense it is not showing for liability.
ReplyDelete