# Preparing Final Accounts when VAT is on Cash Received Basis



## Tweety (10 Mar 2008)

Hi, 
We are currently preparing our VAT returns on a Cash Received Basis. Our first year is now up and I am trying to prepare the Accounts figures for the Accountant. 
I presume when doing the Nominals, the Sales will be posted from the Sales Day Book based on invoices issued. What I am unsure about is how to balance the VAT Control Account. Obviously the VAT due per the Sales Day Book will be much higher than the VAT due on the Cash Received Basis. How do I account for the difference in the VAT control Account?
I am new to this so any help would be appreciated.

Thanks,
Tweety.


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## dooloo (11 Mar 2008)

Accounts are always prepared on an 'invoice' basis and hence your closing balance in the VAT control account will be made up of two principal figures.

1) Outstanding balance as per the Revenue. i.e. latest VAT3 and any other miscellenous adjustments to be amended on a future VAT3.

2) VAT on closing debtors. i.e. this is the VAT which as been invoiced through sales but not received as yet (therefore not outstanding as per Revenue). Normally this figure would be a straightforward formula = 'debtors / 1.21 x 21%'. However this can be different if some debtors are at 0% or 13.% rate.


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## Tweety (12 Mar 2008)

Hi Dooloo, 

Thank you for your reply. I had a feeling that would be the only way to do it but I wasnt sure!! 

Sorry but I do have another question in relation to our first year accounts... we bought a van which was financed by a lease. In the nominals, would I be correct in showing the following figures?

Motor Vehicles A/c :  Debit the cost of van (excluding VAT??) which is shown as an asset in the Balance Sheet
Lease A/c : Credit Finance Amount (do I include vat & interest??) which is shown as a liability in the Balance Sheet

I know I must split the lease payments between the interest, which is an expense in the P&L and the lease repayment, which is debited against the amount outstanding on the lease.

Many thanks,

Tweety


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## dooloo (13 Mar 2008)

Tweety said:


> Hi Dooloo,
> 
> Thank you for your reply. I had a feeling that would be the only way to do it but I wasnt sure!!
> 
> ...


 
You appear to be correct in you thinking but I'll just show you in a quick example. Let's say you are buying a car for €10,000 on 36 month lease of €300 per month (ie €800 interest charge).

Dr Motor vehicles   B/S  €10,000
Cr Lease liability     B/S  €10,000

In the first year, you have say 12 payments (€3,600 + VAT, inc interest of €267). Interest for the year being €800 x 12/36. Payments are posted as folows (assuming there is VAT)

Cr Bank               B/S  €4,356
Dr VAT                B/S  €  756
Dr Lease interest   P/L  €  267
Dr Lease liability   B/S   €3,333

hope this helps you!


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## Tweety (13 Mar 2008)

Thank you Dooloo, you have been a great help!!
I understand how to breakdown the repayments in the Nominals. Regarding the original entries for Motor Vehicles & Lease Liability in the balance sheet, do I show the value of the van and the Lease exclusive of VAT??


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## asdfg (13 Mar 2008)

Afaia you also should split the Lease liability between short term liability - Current liability (next 12 months and long term liability (over 12 months) 
So 
Balance at end of year 1 - 
Lease Liability Current Liability (Short Term) 3333  
Lease Liability Long Term Liability 3333

I stand corrected on this


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## dooloo (13 Mar 2008)

correct on both accounts. 

Asset and liability as both ex VAT and VAT is only claimed back when each lease payment is made. Different with HP where the VAT is paid and reclaimed up front.

Also the breakdown between short and long term is correct.


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## Tweety (14 Mar 2008)

Thank you very much for all the replies, it has been a great help to me.


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