There are 2 ways for doing VAT Treatment:-

1. You may show Output Vat as Liability & Input Vat as an Assets. However, due to legal enforceable right to settle the above two item, we show them as a net item i.e. Vat Payable / Refundable in balance sheet. While using this method, you should not add the Vat amount in Purchases.

Purchases A/c    ..Dr. (Amt. without Vat)-Trf to P&L

Input Vat A/c      ..Dr. (Vat Amt.)-Trf to Bal Sheet

      To Cash / Creditors A/c 

& same for Sales....

However, Payment to Govt. is adjusted from the Net Balance i.e. Vat Payable.

Vat Payable A/c   ..Dr.  (Amt Paid)-Balance Sheet

        To Cash / Bank A/c

2. You may also show that Output Vat by adding it in Sales & Input Vat by adding it in Purchases.

Purchases A/c    ..Dr. (Amt. with Vat)-Trf to P&L

      To Cash / Creditors A/c

& same for Sales....

You have to pass to additional entry for providing Liability for excess VAT recovered from Customer to be deposited to Govt.:-

Vat Expenses A/c    ...Dr.  (Amount Payable)-Trf to P&L

        To Vat Payable A/c

You may also download a presentation in this regard from CA Cub India after 2 days........

You have to adopt only 1 method of it.....

   Value added tax has been gaining favour over traditional sales taxes. In many developing countries Vat is key revenue source as high unemployment and low per capita income render other income sources inadequate. There is strong opposition to this by many sub-national governments as it leads to an overall reduction in the revenue they collect as well as a loss of some autonomy.

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