Thanks so much for your reply. However, all im given(in my papers) are: Telephone Account Bank Account Vat Account Hence why im confused about how to deal with it. Thank you
Recognise the question...Is it an ICB mock exam? Well, that is not a very difficult one, before you go any further in studies try to work this out yourself!! (this advice is bigger help than you would think)
It is Atilla, yes. Ive been at it since yesterday morning.I really need to understand it, so i know what to do in the future. The problem i have is i would Debit the Telephone account with the full amount, and then Credit the VAT account(with the VAT) But im stuck when i get to the Bank account(as i then need to Credit the amount before VAT), but then how can i explain the wording in the Telephone account, when i just said-Bank(full amount). Maybe im just confusing myself...
Atillaaaaaaaaaaaaaaaa, Thank you so so so much. Had my Eureka moment! Thank you so much to Pauline as well! Just realised that Approving(Recording) a transaction and actually paying for it are 2 different things.
Lets use some figures, phone bill 117.50 including VAT needs paying
Pay bill by cheque - credit bank 117.50 money going out cost to business - Debit phone account 100 less vat VAT cost - Debit Vat account 17.50
It normally helps me to use simple figures to get head round double entry if not sure, just remember that what ever you credit needs to balance with an equal debit.
Did not want to confuse you with long explanations but for the completness I have to ;) When you receive you phone bill it is not actually your phone bill!!! It is your phone bill plus VAT so you have to account for it accordingly. As Alfred said before:
If your phone bill is for example 76.37 you will have to cr bank a/c with this amount as that is what you are paying out from the a/c with a cheque (you can write in the details phone+vat). When you get to the debit side of entries think how much of this money was the phone bill, dr phone a/c with this and write bank in description (in my example it is £65) You paid the VAT element of this,too with the same cheque so you will have to dr your VAT a/c with the VAT amount and write bank in description (in my example it is £11.37) That was about your assignment.
Now coming the confusing bit. You only have to do the above if you are vat registered, if you are not you have to work with the gross figures. And than in real life unless you are on cash accounting scheme you would do what Paulin said because you have to account for the invoice - the phone bill is an expense for your business from the tax point date on the invoice not from when the payment is made. So you would enter the transactions as Paulin described it and you would have to account for the payment made to phone company,too same again follow Paulins instructions. The tax point on invoice and the payment made is normally not the same date but as I said before in accruals accounting it is you expense from tax point and your payment is in your books from the day you issued the cheque and not from when it is cleared.
PS careful! in your task there are amounts saying VAT inclusive and others saying VAT has to be added!
Thank you for your time and explanation-it really helps. Yes, there are amounts with Vat inclusive and some needed to be added.There are also some where there is no mention of Vat(like on Creditors opening balances who are settled further on) so trying to work out whether i should do the ask assuming the opening balances are the gross amount and substract the Vat from that or not. Thank you again!
Anyway, i guess it doesnt matter, as the Bank will give the gross amount and the supplier will receive the gross amount , when the account is settled. I really should read things thru before rushing with questions. Thank you again.
