How to make journal entry of Value added tax (VAT

How to make journal entry of Value added tax (VAT) its full form is Value added tax When goods are purchased and sold with the state under such condition vat is paid and vat is collected.

vat is charged when sale is made within the state .VAT paid when goods are purchased which means that when goods are purchased from party under such condition vat is paid to the party means vat paid which is current asset because vat paid in advance.

similarly when goods are sold to party vat is collected from the party means VAT collected which is liability for us and its our duty to deposit vat in government account.These condition vat collected and vat paid is only applicable for regular dealer registered with the sales tax authority with in the state.

Vat Journal Entry

1) when goods are purchased and vat is paid on the time of purchased

Purchased A/c

VAT paid A/c

To Cash A/c /Creditor A/c

(being goods purchased and Vat Paid)

2)When goods are sold within the state to party

Cash A/c/Debtor A/c

To Sale A/c

To vat Collected A/c

(being goods sold to party and vat collected)

3)When VAT is paid to the goverment

under such condition VAT collected should be more than VAT paid

so adjustment entry will be

VAT Collected A/c

To vat paid A/c

(being vat adjusted)

For depositing the amount in the government bank

vat paid To government A/c

To cash a/c

(being vat paid to government)

Vat Journal Entry
Example suppose A ltd purchase goods on credit from B Rs 10,000 and Vat paid 10%.
Therefore journal entry will be
Purchase A/c 10,000
Input VAT / VAT paid A/c 1000
To B
(being goods purchased from A)
Now A sold all goods to C for Rs 12000 includes its profit and VAT collected from C is 10%.
Therefore journal entry for the same will be
C 13200
To Sales A/c 12000
To VAT Collected / Output VAT A/c 1200
(being goods sold to c)

now there is adjustment which will done in following way before payment of vat in government if there is any liability arise which arise when Output VAT is more then Input VAT.

VAT paid to government accounts = Output VAT – Input VAT

and in this case that will be

200 = 1200 – 1000

here adjustment of Rs 1000 is to made because that TAX is paid when goods are purchased therefore following entry will be pass

Output VAT A/c     1000

To Input VAT A/c 1000

(being adjustment of VAT paid)

Now entry of payment in government account which in this case is Rs 200 here vat paid to government is our liability and we are write off our liability by paying it and dr it and cr bank a/c.

Vat paid to government A/c 200

To bank A/c  200

( being vat paid to government account)

What are jounral entry  of goods return to us

Example of journal entry of VAT in Tally

Suppose A ltd Purchase 2o nos of computer from B ltd price per unit of computer Rs 25000 and Vat @ 13.5%.

journal entry for purchase of goods with VAT

To activate the option of Vat

  1.  F11: Features > f3 : statutory and taxation “enable value added Tax (VAT) ? to set yes
  2. set alter VAT set to yes

VAT ledger Creation

  1.  Go to gateway > Accounts info > Ledgers > Create
  2. Name of purchase@13.5%
  3. Under : Purchase accounts
  4. Inventory value are affected : Yes
  5. Type of Ledger Not applicable
  6. Used Vat returns YEs
  7. VAT class : Purchase@13.5%
  8. accept the screen

purchase @13.5% in VAT

Create the input VAT @ 13.5%

  1. Name input Vat @ 13.5 %\
  2. Under : Duties and Taxes
  3. Type of duties/Tax VAT
  4. VAT Sub type : Input VAT
  5. VAT Tax class : Input VAT @ 13.5%
  6. Percentage of calculation 13.5%
  7. Method of calculation on VAT RAte
  8. Rounding method : Not applicable\

VAT Input Tally


To make entry of vat Go to gateway of tally > Accounting voucher > F9 purchase + press CTRL + V if not in item invoice mode item invoice mode screen appear

purchase entry with Vat in tally

purchase entry with Vat in tally


  1. Party ledger name : press space bar select : cash
  2. In name of item select : computer
  3. In name of quantity type : 20
  4. In rate: Type :25000
  5. amount will be automatically display
  6. select : purchaase @ 13.5% ledger
  7. Select : input vat @ 13.5% leger

Also see : Journal entry of CST

Leave a Reply

Your email address will not be published. Required fields are marked *

Best Tally Accounts Finance Taxation SAP FI Coaching Institute in dehradun © 2018 Frontier Theme