Home For AAT student members AQ 2013 AAT Level 2 (Level 5 in Scotland)

Is VAT an expense or a revenue or a liability or..?

BU982TBU982T Registered Posts: 40
I'm doing some double entry bookkeeping and whenever it is a sale (a revenue account) I credit the VAT account and when it is a purchase (an expense) I debit the VAT account. I'm guessing that you probably wouldn't call it a revenue or an expense as its more on the lines of "collecting" VAT for HMRC and it seems therefore that it's more of a liability However, there is the possibility that HMRC will pay me back instead. So what type of account is it?


  • ariadneariadne Registered Posts: 218
    The VAT account is like the purchase and sales control accounts combined. It is recording the VAT on purchases as an asset - it is owed to you by HMRC, like receivables owed by customers. It also records the VAT paid by customers on sales, this is a liability as you owe it to HMRC, like a credit purchase/trade payable. The balance will then show whether it is an asset or liability overall, with AAT questions it's far more often a liability, so it's owed to HMRC and in the Credit column of the statement of financial position. But it could be that you've paid out more VAT on purchases than received from sales and the balance is recorded as an asset in the statement. It does get clearer when you do the financial statements and AP modules at L3.
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