OLEVEL HANDOUTS

VALUE ADDED TAX (VAT)

A charge on taxable supplies of goods and services by a taxable person in the course of a business. The concept underlying the VAT is that the tax is paid by the ultimate consumer of the goods or services but that everyone in the supply chain must account for and settle up the net amount of VAT they have received in the VAT tax period, usually three months. If they have received more in VAT than they have paid out in the VAT, they must send the difference to Custom and Excise or Tax Authority. If they have paid out more than they have received, they will be reimbursed the difference.

Purchase/ Purchase Return Day Book: Date xxx Supplier/ Creditors (-) Trade discount Transfer to ledger

Goods xxx (xxx) xxx

VAT

Total

xxx

xxx

Sales/ Sales Return Day Book: Date xxx Customer/ Debtors (-) Trade discount Transfer to ledger Goods xxx (xxx) xxx VAT Total

xxx

xxx

General Journal Date xxx Assets a/c VAT a/c Creditors a/c (Narration as per stated in the question)

Debit xxx xxx

Credit

xxx

VAT account
Purchase/ Supplier VAT Return inward VAT Fixed Assets VAT Expense VAT Balance c/d xxx xxx xxx xxx xxx xxx Sales/ Customer VAT Return outward VAT Income VAT Balance c/d xxx xxx xxx xxx xxx

Explanation of VAT account:

Closing/ Opening debit balance means Tax Authority (Custom and Excise) owes to the business, this amount must be treated as current assets in the Balance sheet. Closing/ Opening credit balance means business owes to the Tax Authority (Custom and Excise), this amount must be treated as current liabilities in the Balance sheet | Tawsif Alam Khan | http://sites.google.com/site/vhaccounting |

OLEVEL HANDOUTS

EXAMPLE: SHOWING CALCULATION OF VAT AND TREATMENT IN BOOK OF FIRST ENTRY.

10% VAT applied in all transaction where indicated. 1 Jan: Jan 1 Mc Alley Sold goods to Mc Alley of 2000. Goods 2000 VAT Total 2000

2 Jan: Jan 2

Sold goods to Peter Ducker of 2000 plus VAT. Goods Peter Ducker 2000 VAT 200 Total 2200

3 Jan: Jan 3

Sold goods to Mc Millen of 2000 plus VAT (25% trade discount is applied on the goods) Goods Mc Millen (-) trade discount (25%) 2000 (500) 1500 VAT Total

150

1650

4 Jan: Jan 4 5 Jan: Jan 5

Sold goods to James Blunt of 2000 plus VAT (5% cash discount is given if payment is made within 2 weeks period). Goods James Blunt 2000 VAT 190 Total 2190

Sold goods to Steve Vai of 2000 plus VAT (25% trade discount along with 5% cash discount is applied on the goods). Goods Steve Vai (-) trade discount (25%) 2000 (500) 1500 VAT Total

142.5

1642.5

6 Jan:

Purchase motor vehicle of 10000 plus VAT from Park Street Garage. Debit 10000 1000 Credit

General Journal: Date 6 Motor Vehicle VAT Park Street Garage (Being purchase of fixed assets on credit)

11000

| Tawsif Alam Khan | http://sites.google.com/site/vhaccounting |