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Accounting treatment for VAT refund

  • 16-07-2012 9:41pm
    #1
    Mac71
    Registered Users, Registered Users 2 Posts: 12 ✭


    Hi,

    I am trying to reconcile the Vat account. There are a Purchase Tax Control Account and a Sales Tax Control Account and a Vat liability account. How should I deal with the accounting entry for a refund? I know I need to debit Bank for the refund received, but what should I credit it to? I have tried to credit it to the VAT Liability Account. However, from the face of it, it looks like I am owing revenue even more money. Could anyone tell me what I should do to recognise the refund received in or if I am doing this right? Many thanks


Comments

  • #2
    barneystinson
    Registered Users, Registered Users 2 Posts: 4,685 ✭✭✭barneystinson


    Mac71 wrote: »
    Hi,

    I am trying to reconcile the Vat account. There are a Purchase Tax Control Account and a Sales Tax Control Account and a Vat liability account. How should I deal with the accounting entry for a refund? I know I need to debit Bank for the refund received, but what should I credit it to? I have tried to credit it to the VAT Liability Account. However, from the face of it, it looks like I am owing revenue even more money. Could anyone tell me what I should do to recognise the refund received in or if I am doing this right? Many thanks

    The VAT liability Account presumably includes a debit entry representing a debtor for the amount of the refund due, so when it is received to the bank, you need to credit the refund against it, as it is no longer due...


  • #3
    Clanket
    Closed Accounts Posts: 2,087 ✭✭✭Clanket


    Yes the VAT liability account. There will be an equivalent combined debit in the other two a/c's to cancel the credit.

    It's easy to see if you pretend you just commenced trading. Here's an example first 2 months:-

    Total in Sales VAT a/c: (€10,000)
    Total in Purchases VAT a/c: €15,000

    So combined there is a total debit of €5,000 (i.e. a refund due - a debit on balance sheet increases an asset).

    Therefore, when you post the refund you will debit the bank a/c and credit the VAT liability a/c.

    After that you will have the following:

    Total in Sales VAT a/c: (€10,000)
    Total in Purchases VAT a/c: €15,000
    Total in VAT liability a/c: (€5,000).

    All these net off to €0 which is correct.

    Hope that helps.


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