Accounting Entries for VAT Transactions

There are several types of VAT transactions. This section discusses accounting entries for vouchers with:

  • Recoverable VAT calculated at gross.

  • Recoverable VAT calculated at net.

  • Recoverable inclusive VAT.

  • Recoverable inclusive VAT calculated at net.

The following examples use this additional information, unless otherwise specified:

  • Record Input VAT is selected.

  • VAT is calculated at gross.

  • The VAT calculation type is Exclusive.

  • The VAT declaration point is Invoice Date.

  • The VAT tax rate is 10 percent.

  • VAT is 100 percent recoverable.

VAT Calculated at Gross or Net

Discounts determine the difference between VAT calculated at gross and VAT calculated at net. Calculating at gross uses the gross amount that you enter on the voucher when determining the VAT basis amount. Calculating at net assumes discounts are always taken. The VAT amount is the gross amount minus the net discounts.

Calculating VAT at gross:

  • Gross amount = 10000

  • Discount = 2 percent

  • Gross = 10000 (VAT basis amount)

Calculating VAT at net:

  • Gross amount = 10000

  • Discount = 2 percent

  • Net = 10000 - (10000 * .02) = 9800 (VAT basis amount)

Note:

You cannot select the Recalculate check box on a payment when you are calculating at net.

VAT Calculation Types

There are two types of VAT calculation methods: exclusive and inclusive.

  • VAT Exclusive: The VAT amount reported on the supplier's invoice and entered into PeopleSoft Payables from the merchandise amount.

    The system generates a calculated VAT amount that is used to check tolerances. The system calculated amount is gross (merchandise amount) * VAT code %.

  • VAT Inclusive: The VAT amount is not reported separately on the supplier's invoice but is included in the merchandise amount.

    Because the VAT amount is included in the gross amount, it is necessary to determine the expense distribution portion using the following equation:

    Gross - (VAT Code % * distribution expense) = distribution expense

    PeopleSoft calculates the distribution expense by substituting in the appropriate values:

    Gross Amount = 10000

    VAT Code = 10%

    Expense Distribution = x

    10000 - .1x = x

    10000 = x + .1x

    10000 = 1.1x

    x = 10000 / 1.1

    x = 9090.91

    The Include Freight and Include Misc Charges (include miscellaneous charges) options are not valid if the VAT calculation type is inclusive.

VAT Declaration Point

The VAT declaration point determines the date on which VAT input is recognized. There are four possible dates:

  • Accounting.

  • Delivery.

  • Invoice.

  • Payment.

The Record Input VAT option must be selected. For accounting purposes, accounting, delivery, and invoice declaration points create the same entries; an entry is made to a VAT input account when the voucher posts.

Payment generates an accounting entry to a VAT input intermediate account when the voucher posts. This entry reverses and posts to the VAT input account when the payment posts.

The VAT use type determines the percentage of the VAT input that is recoverable and the percentage that is a nonrecoverable amount.