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Accrue for VAT on purchases?

I have started a small business and am pulling together the monthly management accounts for the Board but am coming across a number of probably very simple accounting/book keeping problems.

The first I have a dilemma over is the treatment of VAT on monthly accrued expenses, should this be recorded as follows?

1. DR P&L expense: £100

2. CR Balance sheet accruals: £120

3. DR Balance sheet VAT debtor: £20

OR should I ignore VAT as I don't have an invoice for the accrued expense? 

Any thoughts would be appreciated!

Thanks

S

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10th Oct 2011 17:21

VAT accruals

Ignore VAT for the purposes of the accrual.  

John

 

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By Old Greying Accountant
10th Oct 2011 17:28

No ...

... if you are cash accounting for VAT, then definitely no VAT, if invoice accounting then if the tax point is after your period no VAT creditor due. If you are waiting an invoice for a tax point in your period then you may, but strictly that should be a creditor not an accual, as it is a debt due, whereas an accrual is a provision for an expense not yet billed and will typically be for telephone calls; bank charges; utility charges; or similar type expenses.

Many business will annualise the cost and set up a recurring journal to credit accruals debit expense, and when the bill comes in or is paid, credit bank/creditors and debit the VAT to VAT and the expense to accruals (and if they are really keen will adjust the annual estimate each time a bill comes in).

 

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10th Oct 2011 17:36

We are invoice accounting and as we are still in a start up phase without revenue, I'm only dealing with costs and reclaimed VAT.

Typically our expense accruals are for work undertaken by our professional advisors which has either not yet finished and / or been invoiced.  To that end, I think you've answered my question and as such I won't be accruing VAT recoverable on the BS.

Thank you!

 

S

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By Old Greying Accountant
10th Oct 2011 17:41

No problem

I did of course mean VAT debtor, apologies, it is nearly home time!

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