Chapter 2: Accounting for VAT and Payroll

Question 1

What is input and output tax?

Answer 1

Input tax - VAT charged on purchases (coming IN)

Output tax - VAT charged on sales (going OUT)

Question 2

What would a debit or credit balance on the VAT control account mean and which is most likely?

Answer 2

Debit balance - the business is owed money from HMRC

Credit balance - the business owes money to HMRC (most likely)

Question 3

When is VAT calculated when trade and bulk discounts are involved?

Answer 3

VAT is calculated after discounts have been deducted

Question 4

What is included in gross pay?

Answer 4

The wage or salary due to the employee

Question 5

Define net pay.

Answer 5

The amount the employee receives after deductions

Question 6

List the four accounting entries for wages and salaries.

Answer 6

1. Total business expense
Dr Wages Expense
Cr Wages Control

2. Net wages to the employee
Dr Wages Control
Cr Bank

3. Deductions payable to HMRC (VAT and NI)
Dr Wages Control
Cr HMRC Liability

4. Deductions payable to other funds (E.g pension)
Dr Wages Control
Cr Voluntary Deduction