Question about VAT in exams

CJE117 Registered Posts: 2 New contributor 🐸

I'm currently revising for my Accounts Prep 2 exam and had a question.

In all my revision and mock exams, all situations were assuming the company was not registered for VAT. So I was a little taken aback when in my Accounts Prep 1 exam the questions related to VAT registered business. Sadly non of my textbooks could advise me.

For example, if it was a question about making a payment to a supplier via cheque and there was no entry for the VAT portion of the purchase, would the entry made into the bank ledger be inclusive of VAT?

Sorry if this isn't clear? If someone could show me an example of the difference that would be most helpful.

Thank you.


  • Cudey
    Cudey Registered Posts: 138 Dedicated contributor 🦉
    Hi CJE117,

    Not sure if I understand your question clearly - have you possibly got a question, as an example, from an AAT mock exam?

    Using your exampld with paying a supplier - It comes down to whether the supplier is VAT registered.

    So 2 scenarios here -

    1) A VAT Registered supplier sends you an invoice for £120.00, which is £100 Net and £20 VAT, you'd record this as:

    Cr. PLCA (Purchase Ledger Control Account) - £120
    Dr. Purchases £100
    Dr. VAT £20

    When you come to pay this invoice by cheque, the double entry will be:

    Cr Bank - £120
    Dr PLCA - £120

    The VAT is accounted for on the invoice.

    2) A Non VAT Registered company sends you an invoice for £120. You'd record this as:

    Cr PLCA - £120
    Dr Purchase - £120

    When you come to pay this invoice by cheque, the double entry will be:

    Cr Bank - £120
    Dr PLCA - £120

    You can't claim any VAT as there wasn't any charged to you.

    The other possible scenario is relating to your company. If you are VAT registered, then the above applies. But if you aren't VAT registered, you'd account for the VAT in the purchases account - For example (using scenario 1 with a Net of £100 and VAT of £20)

    Cr PLCA - £120
    Dr Purchases - £120


    Cr Bank - £120
    Dr PLCA - £120.

    Hope this helps - and apologies if i've misunderstood.
  • CJE117
    CJE117 Registered Posts: 2 New contributor 🐸
    Hi Cudey.

    Actually yes. Your examples have cleared it up for me. It was so frustrating to know exactly how to answer the questions, but dumbfounded as to which figures to include.

    Thank you very much. :001_smile:
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