VAT Calculations for Credit Item Refunds
This topic offers examples of refunding a credit item under the following conditions:
VAT declaration point is set to Invoice.
VAT declaration point is set to Payment.
This example has two scenarios:
Refunding a credit item at the customer's request.
Refunding a credit item when the customer overpays.
Refunding a Credit Item at the Customer's Request
A 150.00 EUR invoice, including 8.25 EUR VAT, is sent to a customer, and the full amount of the overpayment is put on account.
Here are the accounting entries:
When the credit item is entered:
Accounting Entry
Debit
Credit
Accounts Receivable
150.00
User-defined (Revenue)
141.75
VAT Output Final (VOC)
8.25
When a customer requests a refund:
Accounting Entry
Debit
Credit
Accounts Receivable
150.00
Refund
150.00
Refunding a Credit Item When the Customer Overpays
A 100.00 EUR invoice, including 5.50 EUR VAT, is sent to a customer. Then the following occurs:
The customer overpays the invoice by 150.00 EUR.
The overpayment is put on account as a credit item, and no VAT is assessed to the money on account.
The money placed on account is refunded.
Here are the accounting entries:
When the invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
100.00
User-defined (Revenue)
94.50
VAT Output Final (VO)
5.50
When an overpayment is put on account as a credit item:
Accounting Entry
Debit
Credit
Accounts Receivable
100.00
Cash
250.00
AR (Charged to OA Account)
150.00
When the money placed on account is refunded:
Accounting Entry
Debit
Credit
Accounts Receivable
150.00
Refund Control
150.00
This example has two scenarios:
Refunding a credit item.
Refunding a credit item put on account.
Refunding a Credit Item
A 150.00 EUR credit item, including 8.25 EUR VAT, is entered, and then the credit item is refunded.
Here are the accounting entries:
When a credit item is entered:
Accounting Entry
Debit
Credit
Accounts Receivable
150.00
User-defined (Revenue)
141.75
VAT Output Intermediate (VOI)
8.25
When the customer requests a refund:
Accounting Entry
Debit
Credit
Accounts Receivable
150.00
Refund Control
150.00
VAT Output Intermediate (VOI)
8.25
VAT Output Final (VOC)
8.25
Refunding a Credit Item Put on Account
A credit was created using a payment worksheet as a result of an overpayment. Then the following occurs:
The overpayment was put on account (OA item, which is a credit item).
The on-account item is refunded.
Here are the accounting entries:
When an invoice is sent to the customer:
Accounting Entry
Debit
Credit
Accounts Receivable
100.00
User-defined (Revenue)
94.50
VAT Output Intermediate (VOI)
5.50
When an overpayment is put on account as a credit item:
Accounting Entry
Debit
Credit
Accounts Receivable
100.00
Cash
250.00
OA Account
150.00
VAT Output Intermediate (VOI)
5.50
VAT Output Final (VO)
5.50
When the item is refunded:
Accounting Entry
Debit
Credit
Accounts Receivable
150.00
Refund Control
150.00