VAT concepts
Objective: Compute net VAT payable for a period.
Recommended first: Tax on purchases
In a VAT system, a registered business charges output VAT on sales and pays input VAT on purchases. It usually pays the authority the difference. Rates, registration rules, and exemptions are jurisdiction-specific; this lesson uses the fictional country of Norland at 20%.
VAT is collected at each stage of production and sale, with businesses reclaiming tax paid on inputs. The net amount owed is output VAT minus input VAT for the period; if input exceeds output, the business may be due a refund under the stated rules. Real VAT has many exemptions and special schemes, which are outside this course.
Check your work
- Was output VAT computed on taxable sales?
- Was input VAT computed on taxable purchases?
- Is the net payable output minus input?
Keep invoices showing input VAT; they support any reclaim.
Output $2,000 − input $800 = $1,200 payable.
| Account | Debit | Credit |
|---|---|---|
| VAT payable (net) | $1,200.00 |
Common mistakes
✗ Treating VAT collected as revenue.
✓ It is owed to the authority.
Guided practice
Use hints freely here.
Item 1 of 1
VAT payable for the period
In the fictional country of Norland, VAT is 20%. A business made taxable sales of $16,800.00 (excluding VAT) and taxable purchases of $4,900.00 (excluding VAT). Compute output VAT, input VAT, and the net VAT payable.
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Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 2
Remit sales tax
On Mar 20, 2026, Two Wheels Bike Repair pays the Westmara revenue office the $567.00 of sales tax it collected last month.
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Key terms
- VAT
- Value-added tax charged on sales with credit for tax on purchases.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.