Value Added Tax (VAT)

Key words for VAT: - Base (Basic Value)  the price before tax - Tax (Tax value )  that is percent of base value. - Total  price + tax. - VAT calculation Tax = base * tax percent Total = base + tax value Total = base * (1 + tax percent) Base = Total (1 + tax percent) (1 + tax percent)

Who is a taxable person (Taxpayer)? For VAT purposes, a taxable person is any individual, partnership, company or whatever which supplies taxable goods and services in the field of business.

How is it charged? final price of the product is equal to the sum of the values added at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each stage.

To illustration the concept of value-added: To illustration the concept of value-added: 1 - Suppose that a brick factory produces one of brick package cost of $ 100 shekels, and when sold by the manufacturer to the wholesaler with profit rate equal 10%, and after the addition of value-added tax rate of 14.5%, the value of the tax will be and the cost of the product by the wholesaler equal shekels. 2-If we assume that the wholesaler is a profit percentage of 10% of the cost before the tax is that he will collect the wholesaler from the retailer under the name of VAT.

3- If we assume that the retailer is a profit percentage of 10% as well as the values of VAT equal shekels which will be paid by the consumer. If the ratio of profit and the retailer, as we said, 10% so, the consumer will pay the price of 138,545 shekels for a commodity. And the conclusion that the price of this commodity instead of shekels would be an increase of NIS is the sum of value added tax which means that only the consumer who will pay all these taxes.

- Net amount = price before VAT - Gross amount = price after VAT - VAT amount = net amount × VAT percent - Gross amount = net amount + VAT amount - Or Gross amount = net amount × (1 + rate of VAT) - Net amount = gross amount (1 + rate of VAT) (1 + rate of VAT) More Description for VAT Key words:

- Net amount= quantity × price pre unit (vat not included) Gross amount = quantity × price per unit (vat included) - VAT tax payable = VAT collected on sales - VAT paid on purchases More Description for VAT Key words:

1- the double entry record in the journal from purchases invoice: 1- the double entry record in the journal from purchases invoice: a. debited the purchases account with the net amount only b. debit the value added tax account with the vat amount c. credit the (cash, bank, creditor) account with the gross amount. Describe the Accounting for VAT.

2- The double entry record in the journal from sales invoice: 2- The double entry record in the journal from sales invoice: a. credit the sales account with the net amount only b. credit the value added tax account with the vat amount c. debit the (cash, bank, debtors) account with the gross amount Describe the Accounting for VAT.

3- In firms which charges vat on sales invoice the VAT it self is not regarded a part of sales (revenue) 4- VAT on purchases invoice is not regarded apart of purchases (cost) 5- VAT tax payable classified as liability on balance Describe the Accounting for VAT.

Case (1): At 6/1/2008, Al Amal company bought 50 Amcor refrigerators (300 liter) from the supplier Ahmad. price per unit including vat at 3500 NIS, invoice number 525 and the invoice paid in cash.

Answer: Gross amount = 50 × 3500 = Net amount = ÷ 1.145= VAT amount = × 14.5% = The entry: 6/1 Purchases 152, VAT VAT Cash 175,000 Cash 175,000

Case (2): 7/1 the company sold 30 amcor refrigerators (3000 liter) to the customer suhail, price per unit 4500 NIS include VAT,

Gross amount = 30 × 4500 = Net amount = ÷ 1.145= VAT amount = × 14.5% = /1 Cash 135,000 VAT 17, VAT 17, Sales 117,903 Sales 117,903