I'm trying to do a T-account for some data with VAT. Here's the data given:
Spoiler:ShowRevenue (net, all standard rated) £500,000
Purchases (net, all standard rated) (£120,000)
Gross Profit £380,000
Expenses (see Note) (£280,000)
Net Profit £100,000
Wages and Salaries (exempt from VAT) £162,000
Entertainment Expenditure (£40,000 + irrecoverable VAT £8,000) £48,000
Other (net, all standard rated) £70,000
In respect of VAT, payments of £5k, £15k, £20k have been made throughout the year to HMRC and a repayment of £12k was received.
The balance owed by HMRC from the previous period is £15k
The original question is workout the balance for VAT on the statement of financial position on 30th May 20X9 with a hint given: use a T-account.
As for what goes on the DR and CR sides of the T-account, I understand that input tax goes on the DR side as VAT is a liability, and so input tax is a decrease in liabilities as it can be claimed back from HMRC.
Therefore output tax goes on the CR side of the T-account
Balance b.d £15k
Input tax from purchases (£120k * 20%) = £24k
Input tax on other expenses (£70k ^ 20%) = £14k
Amount paid to HMRC throughout year (£5k + £15k + £20k) £40k
Amount paid back by HMRC £12k
Output Tax on revenue (£500k * 20%) £100k
Irrecoverable VAT from entertainment expenditure: £8k
The bold underlined entries are, according to the solution, incorrect. The £12k received from HMRC should be on the CR side and the irrecoverable VAT from entertainment expenditure does not appear on the T-account at all.
Could someone please explain why this is?
VAT T-Account help please Watch
- Thread Starter
- 22-07-2014 16:14
- 23-07-2014 17:10
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- 13-08-2014 07:11
Re the £12k, consider the complete double entry - ie cash received (dr bank), other entry = equal & opposite entry, cr VAT AC. Re vat on Ents, this is disallowable & thus not entered. Not all VAT paid to a supplier is claimable, such as VAT on (non pool) cars