VAT Declaration Point Set to Payment with VAT Rate Changes

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:

1. 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

2. 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

3. 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

4. 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:

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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