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Accounting for taxes

Pankaj (AM - Finance & Accounts) (58 Points)

17 April 2009

Can any one explain me accounting enteries for sales tax paid on purchases & collected on sales and also while presenting financial statements sales tax paid on purchases is to be excluded from cost of purchase or not? can i include the sales tax paid on purchase in purchase a/c & sales tax collectedo on sales in sales a/c?

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5 Replies

CA CS CIMA Prakash Somani (Landmark Group) (23502 Points)
Replied 17 April 2009

It is called VAT and not sales tax. It should be booked seperatly in order to claim Inpout tax credit.

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Shailesh (accounts & Excel VBA) (342 Points)
Replied 18 April 2009

Originally posted by :Pankaj
"	Can any one explain me accounting enteries for sales tax paid on purchases & collected on sales and also while presenting financial statements sales tax paid on purchases is to be excluded from cost of purchase or not? can i include the sales tax paid on purchase in purchase a/c & sales tax collectedo on sales in sales a/c?	"

CST purchase should included in cost, local input vat purchase should be adjsuted to output vat.

e.g.

1.Local purchase :

Purchase a/c debit

vat a/c debit

Paty a/c credit

2. Local sales :

Party a/c debit

sales a/c credit

vat a/c credit

so open vat a/c unde current liabilities.

In tally under duty & taxes. In Busy no need as it is default created

3.Sales to outside state :

Party a/c debit

sales a/c credit

CST a/c credit

so open CST a/c unde current liabilities

In tally under duty & taxes. In Busy no need as it is default created

4.Purchases from outside state :

Purchase a/c debit (includes CST)

Paty a/c credit

Balance amount in Vat a/c is either payable or Refundable.

Balance amount in CST a/c is payable.

But vat refund can be adjusted in CST payable.

Regards,

Shailesh

anoop (accountanat) (25 Points)
Replied 19 April 2009

Originally posted by :CA CS Prakash Somani (A helping Hand)*
"	It is called VAT and not sales tax. It should be booked seperatly in order to claim Inpout tax credit.	"

Pankaj (AM - Finance & Accounts) (58 Points)
Replied 21 April 2009

Originally posted by :Pankaj
"	Thanks for let me knowing accounting enteries, but the main question is not yet solved. i asked about the effect on cost of goods sold & sales income. while preparing financial statements as per companies act, vat on purchases should be added in cost of goods sold or not? and Gross Sales should include the vat collected on sales i.e Gross Turnover.	"

Amol Gopal Kabra (CA,CS,DISA) (Practicing CA) (8539 Points)
Replied 21 April 2009

Dear Pankaj,

What shailesh has said is absolutely correct. All your queries should get satisfied with that.

Still i am explaining to your latest query.

As Shailesh said that the CST A/c and VAT A/c shall be opened under Current Liabilities. This means that VAT and CST shall not form part of the Profit and Loss Account but Balance Sheet. In case of CST paid on purchases, it is no doubt included in cost of purchases. In case of VAT that is eligible for set-off and VAT on Sales and also CST on sales, these will not form part of Cost of Goods sold and Sales Turnover.. These will form part of Current Liabilities, if net VAT is payable and will be transfered to Current Assets if net VAT is refundable.

Morever, in addition of your query, i will also let you know the impact on the inventory.

According to AS-2 on valuation of inventory, the Closing Inventory shall be valued net of the Duties and Taxes paid to Revenue authorities on purchases that are eligible for regund or set-off. So while valuing Inventory also, all the refundable duties and taxes shall not be included in the Value of Closing Inventory.