Im working on accounts for a year that I was partially vat registered for (11 of the 12 months)
I originally put in all figures in as gross, I have since gone through all my vat reports to calculate the vat for each nominal code. The plan was to make the gross amounts net by creating a journal (and just credit the vat amounts for each nominal code and debit the sales).
But this doesn’t seem possible as the credit and debits need to balance in a journal.
So would the best way be to create an invoice for each nominal code?
Or am I completely missing a trick here? It’s a very messy situation that I’ve been left in and I’m trying my best to get them sorted. As you may have already guessed bookkeeping is not my domain.
Normally what you would do here is open the Chart of Accounts and set the dates to cover your accounting year. You should then be able to see all your gross sales and purchase totals in the report.
There are then two ways to go about inputting the journals (an easy way and a hard way). Sales should be straight forward as they are usually dispersed over just 1 or 2 nominal ledgers.
In the above example we have £520.45 of sales (which we will assume to be the gross). So we’d create a journal to debit the 4000 code and move the VAT portion to the VAT Liability Code (2202). We’ll assume the VAT on that 520.45 is a straight 20% so we’re journalling £86.74.
We now repeat this process for all your expenses. Although this is often where it gets more complicated as typically you be using lots of different expense codes (unlike with sales). So there are two options…
1. The Simple Approach
Rather than journal every single expense code from your Chart of Accounts report create a new expense code and call it something like “Consolidated VAT Adjustment”
Now when you run a Profit and Loss report, your NET profit will show correctly due to the VAT adjusting journals we’ve added.
2. The More Complex Approach
Option 1 is a quick and simple way to get a correct NET profit position for the accounting period. If you want however every expense code to report correctly you will need to know the exact amount of Purchase VAT for each nominal code. You can then theoretically use the same approach as before but have many multiple lines for the VAT portion on each expense code.
Obviously this method is more time consuming, but it will result in a more detailed and accurate P&L. That said providing you can backup your bulk adjustments I would go with option 1 for the sake of convenience. But it does depend on how big your account is and how much time you have.
What about the accumulated total on the VAT Liability code?
So up to now we’ve just moved the NET VAT off to another code on the balance sheet. Usually this gets reversed when the VAT payments are made to HMRC. From the bank you would typically tag these as VAT payments and it will debit the VAT liability code 2202.
