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Rhianrach


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Student question: Accounting for Inland Revenue on the trial balance
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If it's on the credit side it means it still hasn't been paid and is therefore a current liability, when it gets paid it will become a zero balance, credit bank debit inland revenue.

If it was on the debit side it would mean you have overpaid them and it is due back.

Would be my guess smile

You may come across the same scenario with vat owing or owed, same thing owing will show as a credit owed from the vatman will be a debit. They do it to trick you and make you think. Trust me the AAT also do this a lot. smile



-- Edited by Rhianrach on Thursday 9th of February 2012 09:23:44 PM

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Ray2000


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Right, I'm up to studying trial balances for Level 1 of the ICB (horray!).

A question presents me with a list of balances as at 31 May 20X1 and asks me to prepare a trial balance. All standard stuff.

However, there is one item in the list that confuses me:

Inland Revenue £3,800

Now I would say that this is tax related expense paid to HRMC and is, therefore, a debit. However, the answer says its a credit.

I've obviously got the wrong end of the stick and I was hoping someone here could explain why this balance would be a credit.

Thanks in advance.

Ray

(If you have Kaplan's Practical Bookkeeping Question Kit, its Question 67)

 



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Ray2000


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I'm sure you are right, but thinking this through..........

You are presented in the question with a list of balances - but little indication of what side they go on. I've got to decide which side they go on and thus get the TB to balance.

Is inland revenue different from other expenses? Your Inland Revenue 't-account' has nothing in it until you get the bill for £3,800. You Credit Bank and Debit Inland Revenue. So at 31 May 20X1 you have a Debit balance on the Inland Revenue account of £3,800.

But according to the answer its a credit balance but I don't understand why.

I guess what I dont understand is the processes that happen in order for the credit/ debit of £3,800 (or whatever) to arise, as I don't work in Finance.

 



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semsley


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The credit balance would more than likely be the money owed to the Inland Revenue for the paye and ni contributions the company has collected from its employees but not yet paid over to HMRC. This is journalled to the HMRC account in the current liabilities when doing a monthly wages/salaries journal. It is a credit entry because it is a liability. When you pay the money over to HMRC on or about the 19th of the month following the payment of the wages/salaries (to make sure they get it for the 22nd) the transaction is credit bank account debit HMRC account which then zeros the HMRC account.

Hope that helps.

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jenand


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Ray2000 wrote:

I guess what I dont understand is the processes that happen in order for the credit/ debit of £3,800 (or whatever) to arise, as I don't work in Finance.

 

 The VAT element of sales will go on the credit side of the VAT T account and then the VAT on purchase will be a debit. Assuming your sales are more than your purchases the balance b/d will be on the credit side. It is a liability as it is yet to be paid to HMRC. 

The payment from the bank will then be a debit in the VAT T a/c.

HTH



-- Edited by jenand on Friday 10th of February 2012 02:05:10 PM

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Jenna
Ray2000


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Thanks to all,

In this particular case the question does indicate that the VAT has a credit balance. So its not a VAT payment to the Inland Revenue.  

I think as Sheila says its clearly PAYE and NI contributions.

 

 



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