All 24 Invoice Processing questions
More in Invoice Processing
What is a duplicate invoice and how do you prevent duplicate payments? How does electronic invoicing (e-invoicing) and OCR improve AP processing? What are invoice exceptions and how are they handled? What is an approval workflow and why is it important? What is a credit note (credit memo) and how is it processed in AP? How are foreign-currency supplier invoices recorded and revalued? What is a pro forma invoice and how is it treated? How are prepayments to suppliers accounted for? How do recurring invoices (e.g., rent, subscriptions) get processed efficiently? How are utility and telecom invoices with variable amounts controlled?
Advertisement
Back to results for “Reconciliations”
Accounts Payable & Receivable › Invoice Processing

How is input VAT/sales tax handled on purchase invoices?

Intermediate

Answer

Recoverable input VAT is recorded separately (debited to a VAT receivable/input tax account) rather than as expense, so it can be reclaimed from the tax authority. The correct tax code and rate must be applied per line, and the invoice must be a valid tax invoice. Non-recoverable taxes are added to the expense.
Invoice $1,000 net, 20% VAT:
  Dr Expense            1,000
  Dr Input VAT            200
      Cr Accounts Payable       1,200
(Input VAT of 200 is reclaimable on the VAT return.)
Real-world example The AP team applies a zero-rate tax code to an export-related invoice and standard rate to domestic ones, keeping the VAT return accurate.

Common follow-ups: When is input VAT non-recoverable? | What makes a valid tax invoice?

Reconciliations Invoice Processing Vendor Management
All 24 Invoice Processing questions