12. Sales Tax Flashcards
What is VAT?
Value Added Tax
It is a tax on sales.
What is output tax.
Tax payable to the state from the sale of goods.
When would a business add tax to the price of their sales?
When they are registered with the state for sales tax.
What is input tax?
Tax suffered from purchases.
This is receivable from the state.
How much tax is payable/receivable from the state at the end of each period?
If output exceeds input:
- The difference is paid to the state.
If input exceeds output:
-The difference is received from the state.
What is the net price.
Price excluding tax.
What is the gross price?
Price including tax.
What is the accounting entry for input tax?
- Debit purchases with the net cost
- Debit sales tax with the tax amount
- Credit cash/payables with the gross cost
What is the accounting entry for output tax?
- Debit receivables/cash with the gross amount
- Credit sales with the net amount
- Credit sales tax with the amount of tax
In the UK, when must a business register for VAT?
When the sales of the company are subject to VAT and turnover exceeds £85,000.
