VAT on Sales
When we make a supply that is subject to VAT, we add VAT to the price agreed with our clients. Therefore, when we receive payment from our clients, we receive our fees and the VAT. This VAT belongs to the tax office and should therefore be passed on at the end of the current reporting period. An example would be as follows:
| Sales invoice issued | |||
|---|---|---|---|
| Invoice | Our money | VAT - Tax office money | |
| € | € | € | |
| Sales | 3,000 | 3,000 | |
| VAT @ 16% | 480 | 480 | |
| 3,480 | 3,000 | 480 | |
When the sale has been completed, our profit is €3,000:
| Profit and loss account | |
|---|---|
| € | |
| Sales | 3,000 |
| Expenses | |
| Profit / (Loss) | 3,000 |
However, we have collected from our client our money and the VAT that becomes a creditor to be paid at a later date:
| Balance Sheet | |||
|---|---|---|---|
| Profit | Bank | VAT Creditor | |
| € | € | € | |
| Sales Invoice | 3,000 | 3,480 | 480 |
| 3,000 | 3,480 | 480 |