VAT Calculations for Advance Payments and On-Account Payments
The system calculates VAT for advance payments and on-account payments and creates accounting entries if you enabled VAT for advance payments on the VAT Defaults Setup page for the VAT Entity Registration driver.
You can override the default as needed for each VAT entity and declaration point combination on the VAT Header page when you apply payments.
If the Receivables Update process generates VAT output entries for an advance payment, it performs the following tasks:
Records the final output VAT.
Reverses the VAT entries for the advance payment when you apply the advance payment to an item.
If the advance payment is recorded in a foreign currency, the system does not revalue the VAT amount when you apply an item to the payment. When you enter the item, the system converts the remaining VAT amount to the base currency of the item's business unit using the exchange rate for the item.
The system also calculates the correct VAT amount and creates the correct accounting entries when you apply a discount to an advance payment. You must apply the discount when you apply the payment to the item.
This section provides the following examples, which demonstrate different VAT scenarios for creating accounting transactions for advance payments:
VAT declaration point set to Payment, prepayment applied on payment worksheet.
VAT declaration point set to Payment, prepayment offset on maintenance worksheet.
VAT declaration point set to Payment, prepayment applied on direct debit worksheet.
VAT declaration point set to Payment with VAT rate changes.
VAT declaration point set to Accounting Date.
VAT declaration point set to Invoice.
VAT declaration point set to Delivery.
Note: The Payment Predictor process (ARPREDCT) processes VAT for prepayments and on-account payments in the same manner as the payment worksheet.
This example applies when the VAT declaration point is set to payment, the final payment is applied on the payment worksheet, and VAT transactions must be generated. The example has the following conditions:
An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6 percent.
An invoice with the total 3,588.00 EUR, including 19.6 percent VAT, is sent to the customer.
The prepayment is cleared against the invoice on the payment worksheet.
The final payment of 2,392.00 EUR is received and applied on the payment worksheet.
Here are the accounting entries:
When advance payment is created:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advance Payments Received (AR)
1,000.00
VAT Output Final (VO)
196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable (AR)
3,588.00
User-defined (Revenue)
3,000.00
VAT Output Intermediate (VOI)
588.00
When advance payment is applied against the invoice on the payment worksheet:
These are the item distribution lines:
Accounting Entry
Debit
Credit
Cash
1,196.00
Accounts Receivable (AR)
1,196.00
VAT Output Intermediate (VOI)
196.00
VAT Output Final (VO)
196.00
These are the prepayment distribution lines:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advance Payments Received
1,000.00
VAT Output Final (VO)
196.00
When final payment is applied against the invoice on the payment worksheet:
Accounting Entry
Debit
Credit
Cash
2,392.00
Accounts Receivable
2,392.00
VAT Output Intermediate (VOI)
392.00
VAT Output Final (VO)
392.00
This example applies when the VAT declaration point is set to payment, the advance payment is offset on the maintenance worksheet, and VAT transactions must be generated. The example has the following conditions:
An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6 percent.
An invoice with the total 1196.00 EUR, including 19.6 percent VAT, is sent to the customer.
The prepayment is offset against the invoice on the maintenance worksheet.
Here are the accounting entries:
When advance payment is created:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advance Payments Received (AR)
1,000.00
VAT Output Final (VO)
196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable (AR)
1196.00
User-defined (Revenue)
1,000.00
VAT Output Intermediate (VOI)
196.00
When advance payment is matched against the invoice on the maintenance worksheet:
These are the item distribution lines:
Accounting Entry
Debit
Credit
VAT Output Intermediate (VOI)
196.00
Maintenance Control
1,000.00
Accounts Receivable (AR)
1,196.00
These are the prepayment distribution lines:
Accounting Entry
Debit
Credit
Advance Payments Received (AR)
1,196.00
Maintenance Control
1,000.00
Advance Payments Received (AR)
196.00
The examples in this section apply when the VAT declaration point is set to payment, the prepayment is applied on a direct debit worksheet, and VAT transactions must be generated. The example has the following conditions:
An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6 percent.
An invoice with the total 3588.00 EUR, including 19.6 percent VAT, is sent to the customer.
The prepayment is applied to items in direct debit on the direct debit worksheet.
The accounting entries vary based on the selected cash clearing method for the direct deposit business unit.
Cash Clearing Method: None
Here are the accounting entries:
When advance payment is created:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advance Payments Received (AR)
1,000.00
VAT Output Final (VO)
196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable (AR)
3,588.00
User-defined (Revenue)
3,000.00
VAT Output Intermediate (VOI)
588.00
When the advance payment is applied against the invoice in a direct debit that is approved on a direct debit worksheet and remitted to the bank:
These are the item distribution lines:
Accounting Entry
Debit
Credit
Cash
3,588.00
Accounts Receivable (AR)
3,588.00
VAT Output Intermediate (VOI)
196.00
Advance Payments Received
196.00
These are the prepayment distribution lines:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advance Payments Received
1,196.00
When the Receivables Update process is run on or after the due date:
Accounting Entry
Debit
Credit
VAT Output Intermediate (VOI)
392.00
VAT Output Final (VO)
392.00
When you reconcile the bank statement, the system does not generate any accounting entries.
Cash Clearing Method: Payment Entry
Here are the accounting entries:
When a deposit is saved or received electronically:
Accounting Entry
Debit
Credit
Cash
1,196.00
Cash Clearing
1,196.00
When advance payment is identified as a prepayment on the payment worksheet:
Accounting Entry
Debit
Credit
Cash Clearing
1,196.00
Advance Payments Received (AR)
1,000.00
VAT Output Final (VO)
196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
3,588.00
User-defined (Revenue)
3,000.00
VAT Output Intermediate (VOI)
588.00
When the advance payment is applied against the invoice in a direct debit that is approved on a direct debit worksheet and remitted to the bank:
These are the item distribution lines:
Accounting Entry
Debit
Credit
Cash Clearing
3,588.00
Accounts Receivable (AR)
3,588.00
VAT Output Intermediate (VOI)
196.00
Advance Payments Received
196.00
These are the prepayment distribution lines:
Accounting Entry
Debit
Credit
Cash Clearing
1,196.00
Advance Payments Received
1,196.00
When the Receivables Update process is run on or after the due date:
These are the item distribution lines:
Accounting Entry
Debit
Credit
Cash
3,588.00
Cash Clearing
3,588.00
VAT Output Intermediate (VOI)
392.00
VAT Output Final (VO)
392.00
These are the prepayment distribution lines:
Accounting Entry
Debit
Credit
Cash
1,196.00
Cash Clearing
1,196.00
When you reconcile the bank statement, the system does not generate any accounting entries.
Cash Clearing Method: Bank Reconciliation
Here are the accounting entries:
When a deposit is saved or received electronically:
Accounting Entry
Debit
Credit
Cash
1,196.00
Cash Clearing
1,196.00
When advance payment is identified as a prepayment on the payment worksheet:
Accounting Entry
Debit
Credit
Cash Clearing
1,196.00
Advance Payments Received (AR)
1,000.00
VAT Output Final (VO)
196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable (AR)
3,588.00
User-defined (Revenue)
3,000.00
VAT Output Intermediate (VOI)
588.00
When the advance payment is applied against the invoice in a direct debit that is approved on a direct debit worksheet and remitted to the bank:
These are the item distribution lines:
Accounting Entry
Debit
Credit
Cash Clearing
3,588.00
Accounts Receivable (AR)
3,588.00
VAT Output Intermediate (VOI)
196.00
Advance Payments Received
196.00
These are the prepayment distribution lines:
Accounting Entry
Debit
Credit
Cash Clearing
1,196.00
Advance Payments Received
1,196.00
When the Receivables Update process is run on or after the due date:
Accounting Entry
Debit
Credit
VAT Output Intermediate (VOI)
392.00
VAT Output Final (VO)
392.00
When you reconcile the bank statement:
These are the item distribution lines:
Accounting Entry
Debit
Credit
Cash
3,588.00
Cash Clearing
3,588.00
These are the item distribution lines:
Accounting Entry
Debit
Credit
Cash
1,196.00
Cash Clearing
1,196.00
VAT rate changes—between the time that the advance payment is created and the time that the item is created—require additional activities and cause the accounting entries to differ. The accounting entries differ depending on whether the advance payment is less than or greater than the item.
Advance Payment Is Less Than the Item
This example applies when the VAT declaration point is set to payment, and the advance payment is less than the item. The example has the following conditions:
An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6 percent.
A 1200.00 EUR invoice with a 9.09 percent VAT rate is sent to the customer, and an item is created in PeopleSoft Receivables.
The prepayment is cleared against the invoice on the payment worksheet.
The final payment of 4.00 EUR is received and applied on the payment worksheet.
Here are the accounting entries:
When the prepayment is created:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advanced Payments Received (AR)
1000.00
VAT Output Final (VO)
196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
1,200.00
User-defined (Revenue)
1,100.00
VAT Output Intermediate (VOI)
100.00
When the prepayment is applied to the item:
Accounting Entry
Debit
Credit
VAT Output Intermediate (VOI)
196.00
Advance Payments Received (AR)
1,000.00
Accounts Receivable
1,196.00
When the final payment is applied against the invoice on the payment worksheet:
Accounting Entry
Debit
Credit
Cash
4.00
Accounts Receivable
4.00
VAT Output Final (VO)
96.00
VAT Output Intermediate (VOI)
96.00
Advance Payment Is Greater Than the Item
This example applies when the VAT declaration point is set to payment, and the advance payment is greater than the item. The example has the following conditions:
An advance payment of 1,196.00 EUR is received, and the standard VAT rate is 19.6 percent.
A 720.00 EUR invoice with a 20 percent VAT rate is sent to the customer, and an item is created in PeopleSoft Receivables.
The prepayment is applied to the 720.00 EUR item.
A second invoice for 840.00 EUR with a 20 percent VAT rate is sent to the customer, and an item is created in PeopleSoft Receivables.
The original prepayment is applied to the 840.00 EUR item.
A final payment of 364.00 EUR is applied to the 840.00 EUR item.
Here are the accounting entries:
When the prepayment is created:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advanced Payments Received (AR)
1,000.00
VAT Output Final (VO)
196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
720.00
User-defined (Revenue)
600.00
VAT Output Intermediate (VOI)
120.00
When the prepayment is applied to the item:
Accounting Entry
Debit
Credit
VAT Output Intermediate (VOI)
118.00
Advance Payments Received (AR)
602.00
Accounts Receivable
720.00
When the second invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
840.00
User-defined (Revenue)
700.00
VAT Output Intermediate (VOI)
140.00
When the original prepayment is applied to the second item:
Accounting Entry
Debit
Credit
VAT Output Intermediate (VOI)
78.00
Advance Payments Received (AR)
398.00
Accounts Receivable
476.00
When the final payment is applied to the second invoice on the payment worksheet:
Accounting Entry
Debit
Credit
Cash
364.00
Accounts Receivable
364.00
VAT Output Intermediate (VOI)
64.00
VAT Output Final (VO)
64.00
This example applies when the VAT declaration point is set to accounting date. The example has the following conditions:
An advance payment of 1,160.00 EUR is received, and the standard VAT rate is 16 percent.
An invoice with the total 4,640.00 EUR, including 16 percent VAT, is sent to the customer.
The advance payment is applied against the invoice.
The final payment is received from the customer.
Here are the accounting entries:
When advance payment is received:
Note: Although the amount posted under advance payments received is 1,000.00, the customer's total balance must be decreased by 1,160.00.
Accounting Entry
Debit
Credit
Cash
1,160.00
Advance Payments Received (AR)
1,000.00
VAT Output on Advance Payments (VOAP)
160.00
When invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
4,640.00
User-defined (Revenue)
4,000.00
VAT Output Final
640.00
When advance payment is applied against the invoice:
Accounting Entry
Debit
Credit
Advance Payments Received (AR)
1,000.00
VAT Output on Advance Payments (VOAP)
160.00
Accounts Receivable
1,160.00
When the final payment is received:
Accounting Entry
Debit
Credit
Cash
3,480.00
Accounts Receivable
3,480.00
This example applies when the VAT declaration point is set to invoice. The example has the following conditions:
An advance payment of 1,160.00 EUR is received, and the standard VAT rate is 16 percent.
An invoice with the total 4,640.00 EUR, including 16 percent VAT, is sent to the customer.
The advance payment is applied against the invoice.
The final payment is received from the customer.
Here are the accounting entries:
When advance payment is received:
Note: Although the amount posted under advance payments received is 1,000.00, the customer's total balance must be decreased by 1,160.00.
Accounting Entry
Debit
Credit
Cash
1,160.00
Advance Payments Received (AR)
1,000.00
VAT Output on Advance Payments (VOAP)
160.00
When invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
4,640.00
User-defined (Revenue)
4,000.00
VAT Output Final
640.00
When advance payment is applied against the invoice:
Accounting Entry
Debit
Credit
Advance Payments Received (AR)
1,000.00
VAT Output on Advance Payments (VOAP)
160.00
Accounts Receivable
1,160.00
When the final payment is received:
Accounting Entry
Debit
Credit
Cash
3,480.00
Accounts Receivable
3,480.00
This example applies when the VAT declaration point is set to delivery and no intermediate VAT is generated. The example has the following conditions:
An advance payment of 1,196.00 EUR is received, and the VAT rate is 19.6 percent.
An invoice with the total 1,196.00 EUR, including 19.6 percent VAT, is sent to the customer.
The advance payment is cleared against the invoice.
Here are the accounting entries:
When advance payment is received:
Accounting Entry
Debit
Credit
Cash
1,196.00
Advance Payments Received (AR)
1,196.00
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable (AR)
1,196.00
User-defined (Revenue)
1,000.00
VAT Output Final
196.00
When advance payment is applied against the invoice on maintenance worksheet:
Accounting Entry
Debit
Credit
Advance Payments Received (AR)
1,196.00
Maintenance Control
1,196.00
Accounts Receivable
1,196.00
Maintenance Control
1,196.00