How is VAT recorded in the books of prime entry?

Intermediate

Answer

In the day books, invoices are analyzed into net, VAT, and gross columns. Output VAT on sales is credited to the VAT account; input VAT on purchases is debited to it. The VAT account accumulates the net amount owed to or reclaimable from the tax authority, and its balance is settled periodically.

Sales invoice: Dr Debtors 1,200; Cr Sales 1,000; Cr VAT 200
Purchase invoice: Dr Purchases 500; Dr VAT 100; Cr Creditors 600
VAT account net = output 200 - input 100 = 100 payable

Real-world example The day book VAT columns feed the VAT control account, whose balance shows the amount due to HMRC.

Common follow-ups: What is output vs input VAT? | How is the VAT balance settled?

Control Accounts Sales & Purchase Ledgers Books of Prime Entry

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