Vat Control Account adjustment

Question asked by Gordon Segrove 4 months ago

Hi All,

I have a starting balance of £50 in my VAT control account at the beginning of my accounting period which I need to remove. It's a necessary hangover from an invoice from the previous period which has been fully VAT accounted for in another accounts package. The debtors opening balance method hasn't worked for reason I won't explain, so I had to create this invoice dated before the accounting perio, which has caused this £50 hangover

I need to create a journal entry to remove the extra £50 VAT amount thats there in the VAT Control account.

Whats the exact format and which accounts do I Cr and Dr?

Many thanks in advance

Gordon

9 Replies

OK - you need to make a correction Journal adjustment to clear the Debtors credit - this will also restate the Retained Earnings as your previous attempts have understated your earnings

DR Trade Debtors £50 CR Retained Earnings £50

Hi Gordon,

I understand. I'm afraid we would not be able to provide account advice in regards to which account codes to use for specific journal entries. This one is especially difficult to say as it involves VAT control. It is possible that you might obtain a reply from one of the accounts on the community, but my advice at the moment would be to check with your accountant to be on the safe side.

All the best,

Mohamed.

Assuming you created a sales VAT invoice for £50 (Credit VAT Control) (Debit Trade Debtors) would have been the CB account allocations

Then the Journal transactions would be the reverse of those to clear the £50.

That worked perfectly to clear the VAT control account, but now my trade creditors in the balance sheet is showing the wrong amount. Hmm

But you should only have changed Trade Debtors with this Journal - where does your Trade Creditors difference come from? What is the difference in value?

Sorry I'm being stupid. I meant trade Debtors now has a (50) in red for all future months. Or maybe that doesn't matter . Fyi I dated the journal entry to be in my last financial rather than current, to deal with the invoice which was also in my last financial (which was causing the VAT Control account problem) if thats make a difference.

OK - you need to make a correction Journal adjustment to clear the Debtors credit - this will also restate the Retained Earnings as your previous attempts have understated your earnings

DR Trade Debtors £50 CR Retained Earnings £50

Brilliant, thanks so much for your help

Gordon, since you've been so spot on brilliant, one last question. How does one enter a VAT adjustment on a VAT return to correct a previous mistake on the last return. For example I claimed for (lets say £10) VAT back on an item which I then realised later had no vat charged. So I need to repay £10 back to HMRC on my next return via a journal entry. Thanks so much

DR the original expense account £10 CR the Vat Control Account

Check a preview of the next VAT return just to see if the transaction has landed in the return - if not tick the VAT box on the Journal

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