Recording VAT recoverable on bad debt
When writing off a bad debt, I understand that the posting in the accounts is as follows:
Dr. B/S VAT recoverable (VAT amount)
Dr. P&L Bad debt provision (Net amount)
Cr. B/S Trade Debtors (Gross amount)
My question concerns the Credit posting to the VAT recoverable amount on the Balance Sheet.
If, on my VAT return, I only had the VAT reclaim amount, the posting upon receipt of a rebate from HMRC would be:
Dr. Bank
Cr. VAT recoverable
therefore netting off the original posting of the bad debt VAT amount.
However, what is the posting (if any) when, as is normally the case, the Output tax exceeds the Input tax and therefore no rebate is due from HMRC. The VAT reclaim for the bad debt just decreases the level of VAT payable.
Do I just leave a Debit balance on the B/S VAT Recoverable amount?
How will it ever be netted off?
Thanks in advance for your help.
Michael
VAT on bad debt
Thanks for your reply gerawson.
That makes complete sense to me. I had indeed forgotten about the resulting variance in the VAT liability account.
Vat on bad debt
The point you are missing is when you pay the vat, it will be less due to the bad debt, e.g if, your normal trading for the period reulted in you having outputs of £1000.00, and inputs of £500.00 you would have a vat liability account of £500.00 which you would pay. If you then had bad debt recoverable output tax of £100.00 you would only pay £400, so the nett off would be against your vat liability account
Hope this helps