Vat overpayment double entry?

sboyle01

Business year end 31/05. In the year end 31/05/2015 accounts I discovered the vat has been overpaid on the sales for the last 2 years (say €500 each year). The adjustment can be made in this years by adjusting sales but what can be done about the last year. I assume there will be a balance owed of €1000 on the vat account as this will be paid back in the next period. So a debit needs to be posted to the vat account for €500 for the 2014 error but I can't figure what the credit would be. It assume it would be wrong to credit the sales in this years as the it should really affect last years sales.

barneystinson

Well it depends doesn't it!

I mean to end up with an additional €500 credited to the Vat control you must have debited somewhere (Debtors?) with €500 too much.

So your reversing entry needs to adjust both places you posted the €500 in error...

sboyle01

barneystinson wrote: »

Well it depends doesn't it!

I mean to end up with an additional €500 credited to the Vat control you must have debited somewhere (Debtors?) with €500 too much.

So your reversing entry needs to adjust both places you posted the €500 in error...

The errors were calculation errors when they were submitted to revenue. At the moment there is a €500 balance on the vat account at the year end as I debited the vat account and credited sales to adjust for the error in this years accounts. There is another €500 due for the error in 2013's vat so that makes a total of €1000 due back. The 2013 €500 would need to be debited to the vat account to achieve this but what credit would be correct.

An Citeog

sboyle01 wrote: »

The errors were calculation errors when they were submitted to revenue. At the moment there is a €500 balance on the vat account at the year end as I debited the vat account and credited sales to adjust for the error in this years accounts. There is another €500 due for the error in 2013's vat so that makes a total of €1000 due back. The 2013 €500 would need to be debited to the vat account to achieve this but what credit would be correct.

Why would you credit sales with VAT? What was the entry you booked when you made the payment to revenue?

sboyle01

An Citeog wrote: »

Why would you credit sales with VAT? What was the entry you booked when you made the payment to revenue?

Sorry it's end of year accounts so the total sales vat is debited to sales account and credited to vat control account.

sboyle01

sboyle01 wrote: »

Sorry it's end of year accounts so the total sales vat is debited to sales account and credited to vat control account.

So it's actually a prior period error but the year end has been run on sage.

An Citeog

sboyle01 wrote: »

Sorry it's end of year accounts so the total sales vat is debited to sales account and credited to vat control account.

Generally, the entries when you issue an invoice should be:

Dr Debtors
Cr Sales
Cr VAT

When you make the payment to Revenue:
Dr VAT
Cr Cash

Thus, an overpayment should be evident from there being a balance left in the VAT account (excluding any irrecoverable input VAT that should be written off to the P&L.

sboyle01

An Citeog wrote: »

Generally, the entries when you issue an invoice should be:

Dr Debtors
Cr Sales
Cr VAT

When you make the payment to Revenue:
Dr VAT
Cr Cash

Thus, an overpayment should be evident from there being a balance left in the VAT account (excluding any irrecoverable input VAT that should be written off to the P&L.

This wouldn't have shown up as they were calculating vat on their gross takings instead of netting it back. They are a cafe so it would be all cash with no debtors. They then paid the amount they thought they owed and they didn't realise the error for two years.

barneystinson

sboyle01 wrote: »

This wouldn't have shown up as they were calculating vat on their gross takings instead of netting it back. They are a cafe so it would be all cash with no debtors. They then paid the amount they thought they owed and they didn't realise the error for two years.

In that case they understated the net of VAT sales and ultimately the net profit for the prior period. So it's Dr Vat, Cr P&L Reserve. They're due €500 in vat but they'll owe the additional income/corp tax on the €500 of income.

sboyle01

Yes I slept on it and realised the retained earnings should be credited as it is a prior period error. Also the sales will need to be reduced. Thanks that's the answer I was looking for.

ASOT2012

sboyle01 wrote: »

Yes I slept on it and realised the retained earnings should be credited as it is a prior period error. Also the sales will need to be reduced. Thanks that's the answer I was looking for.

But if you credit your opening reserves then your closing reserves for the prior year won't reconcile.

If its immaterial post the adjustment through the current year i.e. revenue.

If it material, then it will be a PY adjustment

sboyle01

ASOT2012 wrote: »

But if you credit your opening reserves then your closing reserves for the prior year won't reconcile.

If its immaterial post the adjustment through the current year i.e. revenue.

If it material, then it will be a PY adjustment

Does it matter if the closing and opening balance aren't the same as there would be a journal entry to show this?

ASOT2012

sboyle01 wrote: »

Does it matter if the closing and opening balance aren't the same as there would be a journal entry to show this?

Well the reserves have to reconcile in the stat accounts, which would be reconciled by that journal I assume.

JeffKenna

If you're going to reverse it then you surely need to get it refunded first?? Bank then would be the other side?