I use Sage 50 to carry out bookkeeping/VAT Returns on a CASH BASIS.
I understand that Sage recognises the VAT liability at the point when a customer invoice is raised. However, I would like a clear explanation as to how Sage does the double entry in the background, in order to ensure that only VAT on PAID invoices ends up in box 1 of my VAT Return, at the time customers ACTUALLY pay.
So for an easy example... if I raise an invoice to a customer for £120.00, the double entry completed by Sage is :
Dr Debtors (customer account) £120.00
Cr Output VAT (sales tax control account) £20.00
Cr Sales £100.00
I have checked the nominal activity list for 2200 (sales tax control account) and the £20.00 output VAT entry is dated with the same date the invoice was raised (as it should be, especially in the situation where VAT is done on an invoice basis).
What I don't understand is how Sage does the double entry to ensure the £20.00 output VAT does not appear in box 1 of my VAT Return, until the point the £120.00 is paid....
I know that for accounting on an invoice basis, when the customer pays, the entry is simply Dr Bank, Cr Debtors (or customer account).
I can see that an option for cash basis VAT, the entry could be, at the time of the customer payment - Dr Bank, Cr VAT Control, Cr Sales...but when preparing year end accounts, the total debtors amount needs to be recognised at the tax point (when the invoice is actually raised) (and that doesn't help me understand how Sage does it)
So if when I raise a customer invoice on Sage...it Dr customer account, Cr VAT (2200), and CR Sales...how does Sage do the double entry to not put it into Box 1 until it's paid? (which may not be until the following quarter)
I have scoured Sage help and google for this and can't find an answer! (maybe I am just being blind!)
Thank you in advance :)