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How to do accounting for VAT in a cash accounting system?
For accrual one, what I generally do is DR output, CR input and credit VAT control account. Amount is the paid.
What about the accounting entries for cash accounting system?Hi Danpsy,
As a VAT registered business, you essentially act as a tax collector for the state.
If you suffer tax on any purchases (input tax), the double-entry is:
DR Purchases (With the net cost)
DR VAT Account (With the amount of tax)
CR Cash/Payables (With the gross cost)The VAT you have to charge on any sales (if you’re VAT registered) is accounted for as so (output tax):
DR Cash (with the gross amount)
CR VAT Account (With the amount of tax)
CR Sales (Net Amount)So, at the end of the period (or maybe quarterly, when you calculate your VAT liability), you will balance off the VAT ledger account. If you are left with a Debit balance, then the tax authorities (HMRC in the UK) owe you money. If there is a Credit balance, you owe this amount to the tax authorities.
Hope that makes sense.
Best,
Andrew
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