Why is Vat paid an asset ? Why is the adjustment entry done from it?Explain the adjustment entry..?
Shanaya,
VAT paid is an asset for the business as we are allowed a settlement against the VAT that we have collected on our sales. This VAT that is paid by us is regarded as input VAT and as is treated as a current asset that can always be adjusted against our VAT collected (i.e. liability). Some of the accountants even assume this to be negative liability because of the same reason that we have paid this to our creditor for paying it to the government. But what is our net liability, that is still not fixed. This liability is fixed when finally we collect some VAT on sales and adjust the amount of VAT that has been paid.
Also, the concept of VAT has already been discussed in the study material provided at our website. We suggest you to go through the same using the link provided below.
https://www.meritnation.com/cbse/class11-commerce/studymaterial/accountancy/financial-accounting-part-i/recording-of-transactions-i/394_2365_14090#slide1_Specific Entries
If you still have any doubt, feel free to get back to us.
Keep posting
VAT paid is an asset for the business as we are allowed a settlement against the VAT that we have collected on our sales. This VAT that is paid by us is regarded as input VAT and as is treated as a current asset that can always be adjusted against our VAT collected (i.e. liability). Some of the accountants even assume this to be negative liability because of the same reason that we have paid this to our creditor for paying it to the government. But what is our net liability, that is still not fixed. This liability is fixed when finally we collect some VAT on sales and adjust the amount of VAT that has been paid.
Also, the concept of VAT has already been discussed in the study material provided at our website. We suggest you to go through the same using the link provided below.
https://www.meritnation.com/cbse/class11-commerce/studymaterial/accountancy/financial-accounting-part-i/recording-of-transactions-i/394_2365_14090#slide1_Specific Entries
If you still have any doubt, feel free to get back to us.
Keep posting