Accounting Entries in VAT

kartik_somu (B.Com, ACA, CISA, CIMA) (1665 Points)

19 March 2008  
ACCOUNTING:

For VAT purposes, the dealer must record its turnover of purchases and sales in the accounts maintained by it. These accounts should:

* Be regularly and systematically prepared and maintained;
* Give a true and fair view of its dealings; and
* Be used by the dealer for determining its turnover of the business for commercial or income tax purposes.

The accounts will normally be prepared on the accrual basis i.e. the dealer must account for VAT in the period in which the consideration for the sale/ purchase is receivable/ payable (and not as money is received or paid). In accrual system sales are accounted for when the invoice is issued.

Accounting Entries :

A) For Input Tax Credit on Opening Stock :

The Accounting Entry to be passed for recording the Input Tax Credit is -:

Input Tax Credit A/c                 Dr.
Opening Stock A/c                   Cr.

B) For Purchases :

Nature of Transaction

Entry in Existing System

Entry under VAT System

Purchase of Capital Goods

Stock–MachineryA/c      Dr.
Excise Duty A/c            Dr.
Creditors A/c               Cr.

Excise Duty A/c             Dr.
Stock–Machinery A/c      Dr.
Input Tax Credit A/c      Dr.
Creditors A/c                 Cr.

Packing Material Purchase

Packing Material          Dr.
Excise Duty A/c            Dr.
Creditors A/c               Cr.

Excise Duty A/c              Dr.
Packing Material            Dr.
Input Tax Credit A/c       Dr.
Creditors A/c                 Cr.

Dies & Punches

Stock–Die & Punch        Dr.
Excise Duty A/c             Dr.
Creditors A/c                Cr.

Excise Duty A/c              Dr.
Stock – Die and Punch    Dr.
Input Tax Credit A/c       Dr.
Creditors A/c                 Cr.

Consumables Purchase

Stock-Consumable Stores  Dr.
Excise Duty A/c                 Dr.
Creditors A/c                    Cr.

Excise Duty A/c                  Dr.
Stock- Consumable Stores  Dr.
Input Tax Credit A/c           Dr.
Creditors A/c                     Cr.

Raw Material Purchase

Excise Duty A/c                Dr.
Raw Material                    Dr.
Creditors A/c                    Cr.

Creditors A/c                     Cr.
Excise Duty A/c                  Dr.
Raw Material                      Dr.
Input Tax Credit A/c           Dr.


C) i)   For Input transferred to other manufacturing unit outside the state :

Stock in Transit A/c                 Dr.
Raw Material A/c                     Cr.
Input Tax Credit A/c                Cr.
Excise Duty A/c                       Cr.

ii) For Finished Goods received from manufacturing unit outside State produced from taxable input transferred from State :

Input Tax Credit A/c                Dr.
Finished Goods A/c                  Dr.
Stock in transit A/c                 Cr.

D) For Transfer of Raw Material to Loan Licensee :

Nature of Transaction

Entry in Existing System

Entry under VAT System

Raw Material Stock Transfer

Cenvat in Transit A/c      Dr.
Stock in Transit A/c        Dr.
Excise Duty A/c              Cr.
Material Issue A/c           Cr.

Cenvat in Transit A/c      Dr.
Stock in Transit A/c        Dr.
Excise Duty A/c             Cr.
Material Issue A/c          Cr.
Input Tax Credit A/c       Cr.


E) For Bad Debts :

Nature of Transaction

Entry in Existing System

Entry under VAT System

Bad Debts written off

Bad Debts A/c                 Dr.
Sundry Debtors A/c          Cr.

Bad Debts A/c                      Dr.
Output Tax A/c                    Dr.
Sundry Debtors A/c              Cr.


F) For Tax Payment :

1) Entry for Input Tax Credit available for adjustment from Output Tax

Local Sales Tax Payable A/c                            Dr.
Central Sales Tax Payable A/c                         Dr.
Input Tax Credit A/c                                      Cr.

The Input Tax credit available will be first adjusted towards Local Sales Tax payable and the balance available, if any, will be adjusted towards Central Sales tax Payable.

2) Entry for Input Tax Credit not available

Purchase A/c                                                   Dr.
Input Tax Credit A/c                                         Cr.