VAT concept of 11th class accountancy

VAT is a tax on sales of goods within some State like Delhi, Bangalore, etc. The seller charges VAT in addition to the price of the goods. So, the buyer has to pay the Purchase Price and VAT. It is similar to Sales Tax.

It is not the revenue/income of the seller. He collects the tax from the buyer and pays it to the State Government.

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A benefit of introduction of VAT is that the VAT paid on goods purchased (ex. raw materials) is allowed to be adjusted against the VAT which collected on the sales. The difference is the amount to be paid to the Government.

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Journal Entries:

(i) When goods are purchased:-

Purchases A/c ...Dr.

VAT Paid A/c ...Dr. (tax paid on purchases)

 . . . To Cash/Bank A/c (cash purchases)

. . . . . . . . . or . . . . . . . .

 . . . To Creditor's A/c (credit purchases)

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(ii) When goods are sold:-

Cash/Bank A/c ...Dr. (cash sales)

 . . . . . . or . . . . . .

Debtor's A/c ...Dr. (credit sales)

 . . . To Sales A/c

 . . . To VAT Collected A/c (VAT charged on sales)

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(iii) Adjustment of VAT collected against VAT paid:-

VAT Collected A/c ...Dr.

 . . . VAT Paid A/c

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(iv) Payment of balance to Government:-

VAT Collected A/c ...Dr.

 . . . To Cash/Bank A/c