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Before knowing the journal entries, I am again explaining VAT. VAT is value added
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tax. India is adopting VAT formula from western countries. Before this, sale tax
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was collected. Value added tax is charged on purchase and sale. On purchase, it
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will be VAT input. On sale, it will be VAT Output. Excess of VAT output over VAT
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input will deposit in state Govt. account. If you are buying or selling the Good
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which are under VAT, you have to keep its record.
For recording, you have to pass following journal entries of VAT.

1.
When Goods are bought and you have to pay both purchase value and
VAT input or paid both, at that time, following journal entry will be
passed.
Purchase Account Dr. (Value of Purchase)
VAT Input Account Dr. ( VAT on Purchase)
Cash or Bank or Name of Creditor Account Cr. (Value of Purchase + VAT input)
Reason of this Journal Entry :
We have bought the goods, it increases our current asset. Increase of asset will
always debit. VAT input is also our current Asset or Negative Current Liability
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Input account will automatically written off. If VAT input will be more than VAT
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Output, we have to Get money from Govt. So, VAT input account will be Debit. If
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we are final consumer, we need not show the VAT Input account, its cost will be
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included in purchase account. So, purchase expense will increase and debit in our
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because We paid this to our creditor or supplier (for paying govt.) but still our net
liability has not been fixed. If we received VAT output same to VAT input, then VAT
2.
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When Goods are Sold and you have to receive both Sale Value and VAT
Output or received both, at that time, following journal entry will be
passed
Cash or Bank or Name of Customer Account Dr. (Value of Purchase + VAT output)
Sale Account Cr. (Value of Sale)

VAT Output Account Cr. (VAT on Sale)
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When we sell any goods we receive cash or bank. If we sell the goods on credit,
we have to get money from our customer. So, Receivable money from our
customer is just like given loan. So, it is also increase of our current asset. So, in
case of cash sale, we will debit cash or bank account. In case of credit sale, we will
debit to debtor or customer account. We will credit to sale account because in sale,
we transfer the ownership of goods to other party. So, it is decrease of our current
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asset. So, sale account will be credit. All the amount of VAT which we will receive
on sale will not go to our pocket. It is the money of Govt. Because Govt. can not
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get the money of tax from each part, so, we have obtained the tax on the behalf of
Govt. So, it is increase in our current liability. So, this account will credit.
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3.
When We pay the Net VAT (Payable) to Government. At that time,

following journal entry will be passed.
Net VAT Payable Account Dr. ( Excess of VAT Output over VAT Input)
Bank Account Cr.
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When we will debit VAT Payable account, it means, we are decreasing our current
tax liability. Every payment through bank account will decrease our current asset,
so bank account will credit. We have to show only excess of VAT output over VAT
Input because the VAT which we have to pay already through purchasing need to
pay again. So, we will deduct VAT input from VAT output.
4.
When there is the Change in VAT input or VAT output Rates, at that time
following Entry will be passed.
I have already explained that State Govt. can change the VAT Rates and its
applying date. So, if you have passed the journal entries with old rate, you need to
adjust your VAT Entries. Different accounting software have different procedure to
adjust it more fastly, you can learn the procedure at here. Adjustment journal
entry will be different, if we have different case. Means, VAT input same but
increased VAT Output. Or VAT input increased but same the VAT Output. If both
VAT input and VAT out has increased. Following is its example
Because VAT is increased from 4% to 5%. It means net increase in input vat is only 1%. Total
purchase is Rs. 1000. Total purchase's 1% is Rs. 10 and surcharge is 10% which is calculated
on Rs. 50 and it will be Rs. 5. So, total value of vat increase is Rs. 15.
It means our (creditors) current liability will increase. So,

VAT input account Dr. 15
Creditor Account Cr. 15
Accept the voucher entry.
Pass next voucher entry for adjusting vat output.
Because VAT Out is increased from 4% to 5%. It means net increase in Output vat is only 1%.
Total sale is Rs. 2000. Total sale's 1% is Rs. 20 and surcharge is 10% which is calculated on Rs.
100 and it will be Rs. 10. So, total value of vat increase is Rs. 20+ 10 = Rs. 30
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It means our (debtors) current asset will increase. So,

Debtor Account Dr. 30
Output VAT Account Cr. 30
Difference between VAT output and VAT input is Rs. 15 and if we pay this Rs. 15 to Govt.
following entry will pass.
VAT Payable Account Dr. 15
Bank Account Cr. Rs. 15
Remind Above Journal Entries Again
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Written by Vinod Kumar

Labels: Accounting, journal entries, tax, VAT
Sales Tax
3 comments:
gurpreet kaur Mata, July 29, 2013 at 10:48 PM
very simple n well explained...Thanks a ton...
Anonymous, January 17, 2014 at 2:37 AM

Its been very informative, thanks aton for your kind help
Toye, March 16, 2014 at 1:32 PM

Your are right. We can also say that the VAT payable to the revenue
authority is VAT output - VAT input. It can also be referred to as NET VAT.
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What are the different journal entries for VAT?

What are the different journal entries for VAT?

When do we debit and credit VAT input and output accounts?

When do we debit and credit VAT input and output accounts?

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Journal Entries of VAT

>> JULY 4, 2013

MEET THE AUTHOR

Prof. Vinod Kumar has received

MOST RECENT ARTICLES

How can an Accountant Help a Small Business

Bookkeeping Basics for Small Business

Biggest Accounting Mistakes

Diwali Message 2014

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which are under VAT, you have to keep its record.

For recording, you have to pass following journal entries of VAT.

Sale Account Cr. (Value of Sale)

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When We pay the Net VAT (Payable) to Government. At that time,

Reason of this Journal Entry :

It means our (creditors) current liability will increase. So,

It means our (debtors) current asset will increase. So,

Remind Above Journal Entries Again

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Written by Vinod Kumar

Anonymous, January 17, 2014 at 2:37 AM

Toye, March 16, 2014 at 1:32 PM

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