Hi, the following will be done for deferred revenue,
Raise sales invoice. Let’s say an invoice for £100 plus 20% VAT
Dr-Debtors Account- with total including VAT £120
Cr- VAT with VAT amount £20
Cr- Deferred income as a liability £100
Then you do another journal
Dr Deferred income £100
Cr- Sales £100
Can someone explain to me if there is any other way of accounting for VAT , if a payment for a service is paid upfront but service would be completed in about 12 months? to account for vat once the service is completed? the entries required?
Many thanks.
Replies (4)
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Not normally
Hi - it would be very unusual to defer VAT in the books to match the income recognition because VAT is based on the "tax point" which, in this case, is when the invoice is raised. I've never seen it nor would I go along with it.
Software?
If you're using a program such as eg Sage and you're using cash accounting then the VAT will be accounted for (by Sage) when the payment is received - irrespective of when you raise the sales invoice. (an adjustment to the VAT account is made, by Sage, if the VAT on the sales invoice when eventually raised and posted is any different)
If, using the same Sage program, you're using an invoice basis - the stansard default mode - then surely you cannot defer / postpone the VAT on a sales invoice - that's due the moment yopu raise the sales invoice (or, if earlier, receive payment from your customer), period!
Are you using any such proprietory accounting software?
Is that what you do?
Do you post the invoice to deferred income and then journal it to sales?
I would post the invoice to sales, then a reversing journal to deferred income. But I digress . . .