VAT bookkeeping practice

Work through VAT calculations.

Item 1 of 3

Proadvanced

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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Quick lesson

VAT concepts

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.

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