I am much more used to VAT registered companies running the normal VAT system, where you pay/reclaim VAT as invoices are received/raised. However, I have just taken on a client who runs the VAT Cash accounting system. I understand the differences between the two systems, but am having trouble getting my head around reconciling the Sage VAT Return to the Sage VAT codes. Normally I just check that the Sale & Purchase VAT codes, plus the VAT Liabailty Codes come to the value of the return for the quarter, and do a journal to move the balance to the liability account, which clears when the VAT is paid/reclaimed.
So how can i reconcile this in the VAT Cash system? Obviously my way above won't work, as the Return is only showing those invoices paid / received payments on. I've run off Day Book reports for Customer Receipts and Supplier Payments for the VAT period, which does show the Tax to be the same as on the Return, but cannot get my head around reconciling the 2200 and 2201 codes?
This must be logical to do - I just can't seem to work it out!!
-- Edited by LizB on Monday 1st of August 2011 03:55:27 PM
The difference will just be the VAT on any debtors and creditors.
So say the sales vat account is £500 which is made up 2 invoices (assuming VAT of 20%)
1. Paid £1000+VAT = £1200 (inc VAT of £200)
2. Debtor £1500+VAT = £1800 (inc VAT of £300)
Your VAT return will only show the £200 for the paid amount. But you will have £1800 in debtors which you know has £300 VAT included so that the difference coming back to your £500 in the sales vat account.
Reverse is the case for purchased vat in that amounts will be in creditors.
Thing you need to watch for is when you do the next VAT quarter is to take off the VAT on the previous debtors and creditors and then add on the VAT on the closing debtors and creditors.
So in the example above taking the figures you have £500 VAT in the sales VAT account, £200 which has been paid and £300 in debtors.
In the next VAT quarter say the £1800 debtor brought forward is now paid but you have had one sale in that quarter of £2000+VAT=£2400 which is unpaid at that VAT quarter end. (thus in debtors)
Your VAT return will show £300 VAT as this relates to the £1800 debtor brought forward that is paid and you will have paid the £200 on the previous VAT return over to the VATman so your sales vat account will look like this
Opening Balance £500
Less VATman paid (£200)
Add VAT on sale £400 (re £2400 sale in qtr in debtors at qtr end)
Less transfer in
Qtr to Liabilty (£300) (re £1800 debtor paid in qtr)
Closing Balance £400
Reconciled To
VAT return £300 re £1800 received
Less VAT on opening debtor (£300) re £1500 debtor at start of qtr
Add VAT on closing debtor £400 re £2400 debtor at end of qtr
Reconciled Balance £400
Of course this is a very simplistic thereotical view of things but hopefully you get the gist of how to reconcile your VAT nominal to the VAT return.
In summary your nominal account shows the VAT on an accruals basis (based in invoices issued) and your VAT return shows the VAT on a cash basis (based in invoices paid). The difference is thus the VAT on the movement in debtors in the VAT period. Opposite applies for purchases and creditors.
It's a nightmare. The accountant of one of my clients and I are trying to reconcile this going back to 2008 (before my time), we've got the difference down now to around £1K difference. One of the major problems with cash accounting in Sage is Payments on Account and whether or not the full or partial amount is subject to VAT as Sage give you only the option of subject to VAT or not. The other problem is that once a payment has been made corrections are not possible using the error correction facility they have to be journalled.
Hi I have a couple of clients on cash accounting, I use the VAT wizard to move the amounts from sales/purchase tax to vat liability, is this the correct way to do it!! Thanks, just made me think I may be doing it wrong!!
Completely agree with Sheila - it's a nightmare. I'm still trying to get with grips to the practicalities of Cash accounting in Sage.
I think you really need to run the various day book reports at the period end, especially cash received and paid. These can then be reconciled to the Sage return.
I'm still very much finding my feet with Cash A/c'g in Sage, but in the three new clients I've taken on lately who use this system no-one have a correct control account.
-- Edited by ADAS on Monday 1st of August 2011 10:22:09 PM
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
I haven't had experience of cash accounting in Sage, but I do in Tas, and to echo Tony and Sheila, it is a complete nightmare to get it add up, it just doesn't make any sense at all. I think that software just isn't set up to run a accruals v cash scenario at once.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Methinks gap in the market for someone who writes software!!!! Dragons Den anyone????
Hi Julie
The transfer wizard will transfer from purchase and sales tax controls to liability and then the payment/refund will wipe out the liability account but what it won't do is check that the figures remaining in the sales/purchase control a/cs are correct because in cash accounting a report on sales/purchase controls taken for the VAT period will not be the same as the VAT on receipts and payments (which is what cash accounting is based on) for the said VAT period. In theory the difference should be the VAT on debtors and creditors. Hope that makes sense it's difficult to write, easier to demonstrate!
Methinks gap in the market for someone who writes software!!!! Dragons Den anyone????
You're definately on to something Sheila.
Perhaps I'm being simplistic but it must be possible to write a report that calculates the Vat element of Closing debtors / creditors. The information is in Sage by default, when you enter the transaction.
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
