Applying a Pending VAT: Generated Transactions
As you process documents with pending VAT, you create and process an AR invoice and an AR payment. When recognizing pending VAT, the system automatically generates a GL transaction. To update the customer's balance and calculate the pending VAT, the system generates the GL transactions described in the following sections.
Transaction Generated for an AR Invoice
When you create and release an AR invoice with pending VAT, the system generates the following general ledger transaction:
| Account | Source of Account | Debit | Credit |
|---|---|---|---|
| Accounts Receivable account | The AR account of the customer specified on the Customers (AR303000) form | Amount + tax amount | 0.00 |
| Sales account | The Sales account specified for the non-stock item on the Non-Stock Items (IN202000) form or for the document line | 0.00 | Amount |
| Pending Tax Payable account | The Pending Tax Payable amount of the pending VAT specified on the Taxes (TX205000) form | 0.00 | Tax amount |
You can view the reference number of the GL batch on the Financial tab of the Invoices and Memos (AR301000) form.
Transaction Generated for an AR Payment
When you create and release an AR payment for the invoice with pending VAT, the system generates the following general ledger transaction:
| Account | Source of Account | Debit | Credit |
|---|---|---|---|
| Cash account | The cash account of the customer specified for the payment method of the customer on the Payment Methods (CA204000) form | Payment amount | 0.00 |
| Accounts Receivable account | The AR account of the customer specified on the Customers (AR303000) form | 0.00 | Payment amount |
You can view the reference number of the GL batch on the Financial tab of the Payments and Applications (AR302000) form.
Transactions Generated When Pending VAT is Recognized
When you recognize pending VAT, the system generates the following general ledger transactions:
| Account | Source of Account | Debit | Credit |
|---|---|---|---|
| Pending Tax Payable account | The Pending Tax Payable account of the pending output VAT specified on the Taxes (TX205000) form | Tax amount | 0.00 |
| Tax Payable account | The Tax Payable account of the pending output VAT specified on the Taxes form | 0.00 | Tax amount |
| Account | Source of Account | Debit | Credit |
|---|---|---|---|
| Tax Claimable account | The Tax Payable account of the pending input VAT specified on the Taxes form | Tax amount | 0.00 |
| Pending Tax Claimable account | The Pending Tax Claimable account of the pending input VAT specified on the Taxes form | 0.00 | Tax amount |
Example of GL Transactions Generated When Pending Taxes Are Processed
This section provides an example of the GL transactions that the system generates when it processes an AR invoice that is subject to pending VAT.
Suppose your company issues a $1000 invoice dated 01/01/2024 for services. The services are subject to a 7% VAT. When this invoice is released in the system, the system creates the following entries in the general ledger.
| Account | Date | Debit | Credit |
|---|---|---|---|
| Accounts Receivable account | 01/01/2024 | 1070.00 | 0.00 |
| Sales account | 01/01/2024 | 0.00 | 1000.00 |
| Pending Tax Payable account | 01/01/2024 | 0.00 | 70.00 |
On 01/31/2024, you run the VAT recognition process. The system generates the following GL transaction once the VAT recognition is completed.
| Account | Date | Debit | Credit |
|---|---|---|---|
| Pending Tax Payable account | 01/31/2024 | 70.00 | 0.00 |
| Tax Payable account | 01/31/2024 | 0.00 | 70.00 |
You can view the generated GL transactions on the Journal Transactions (GL301000) form by using the Batch Number link available in the table.
The amounts posted to the Tax Payable or Tax Claimable account will be included in the tax report, which you create it on the Prepare Tax Report (TX501000) form.
Example of GL Transactions Generated When Partial Payment Has Been Applied
This section provides an example of the GL transactions that the system generates when a partial payment has been applied and recognized.
Suppose your company issues a $1000 invoice dated 01/01/2024 for services. The services are subject to a 7% VAT, which should be recognized after the payment is received. When this invoice is recorded in the system, the system creates the following entries in the general ledger.
| Account | Date | Debit | Credit |
|---|---|---|---|
| Accounts Receivable account | 01/01/2024 | 1070.00 | 0.00 |
| Pending Tax Payable account | 01/01/2024 | 0.00 | 70.00 |
| Services account | 01/01/2024 | 0.00 | 1000.00 |
On 01/20/2024, the customer pays $535, which is half of the amount it must pay for the services plus the $35 VAT amount (7% of $500). This VAT amount must be recognized and posted to the general ledger once this payment is processed. As a result, the system creates the following entries in the general ledger.
| Account | Date | Debit | Credit |
|---|---|---|---|
| Pending Tax Payable account | 01/20/2024 | 35.00 | 0.00 |
| Tax Payable account | 01/20/2024 | 0.00 | 35.00 |
The tax report that is generated at the end of the period, on 01/31/2024, will include $35 of output VAT and $535 of taxable sales.