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For the purposes of value added tax records, three bookkeeping accounts must be kept.

1. The VAT on inputs account.
2. The VAT on transactions account.
3. Debit and Credit VAT account.

  1. The VAT on Inputs Account - This account will usually show a debit (the VAT authorities "owe" you money for the VAT you have paid and that are entitled to receive from them).
  2. The VAT on Transactions Account - This account will usually show a credit (the VAT Authorities are "entitled" to receive the VAT from you that you have collected from them. The money is not yours and it is only temporarily in your possession until the due date for the payment of VAT.
  3. The VAT Debit and Credit account. This is the account to which the 2 first accounts are posted. The account balance may show a credit, when the periodic report to the VAT is for a payment to be made, or it may show a debit when the periodic report shows that that money is to be returned.

A simple example:

30.1.xx - The total purchases that you made amount to $ 1,000 plus $ 150 VAT on inputs.
30.1.xx - The total sales you made amount to $ 4,000 plus $ 600 VAT on transactions.
15.2.xx - You paid the balance to that VAT authorities that was owing to them.

The bookkeeping records will look as follows:

  Debit Credit
1. Purchases 1,000  
VAT on transactions 150  
     Current account at bank   1,150
(30.1.xx) Purchases recorded for January    

2. Current account at bank 4,600  
Sales   4,000
VAT on transactions   600
(30.1.xx) Sales recorded for January    

3. VAT on transactions 600  
VAT on inputs   150
VAT debit and credit account   450
(30.1.xx) Transfer of surplus to debit & credit account    

4. VAT debit and credit account 450  
Current account at bank   450
(15.2.xx)Payment of VAT reported for January    

The Development of Bookkeeping The debit & credit rules Journal Entries Nominal Ledger Trial Balance Annual Statements (Profit & Loss/Balance Sheet) The Balance Sheet
Bank Reconciliation Salaries Tax Deduction at Source Value added tax


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