# Regulatory Compliance Category > Tax Forum >  Input & Output VAT

## DaisyGirl

Hi, I'm battling to grasp the processing of these as well as their position in the accounting equation.

Input VAT is paid to Suppliers.
It's an Asset and is processed as a Debit on the General Journal.

Output VAT is received from Customers.
It's a Liability and is processed as a Credit on the General Journal.

Is that correct?

Grateful for any help in clarifying this conundrum for me!

Kerry

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## Dave A

That sounds right, but doesn't Pastel sort that out for you pretty much automatically as you process invoices and bills?

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## DaisyGirl

Oh... that's right?  Cool. Then I have it!

No, Pastel does not. In a General Journal you still have to select whether you Debit or Credit.

Thank you.

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## Mark Atkinson

Kerry,

When you set up your company in Pastel you set up your tax processing. Pastel should adopt this tax processing when you are completing transactions on Pastel. 

So long as your defaults are correctly set up, you shouldn't have an issue.

What is it that you're trying to put through the General Journal? Supplier/Customer transactions can all be done through the relative docs.

As for your Input/Output VAT "conundrum", that's just about right. Things coming IN (purchases etc) to the business attract INput VAT.  Things going OUT of the business (Sales etc) attract OUTput VAT. 

Your VAT Payable to SARS is Output VAT less Input VAT. (With a negative balance being VAT refundable.) So yes, Input VAT = Asset, Output VAT = Liability, if that's how you prefer to see it.  :Smile:

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rfnel (25-Nov-11)

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## DaisyGirl

Thanks, Mark

I do have Pastel set up, so it all works fine. I'm just trying to grasp the academics behind it!  The Supplier-Input and Customer-Output classification is easy to find but the labels for Asset and Liability not so easy.

Input being an Asset when I owe it and Output being a Liability when my head sees it more as an Asset (because I can offset it against the Input VAT) is not sitting well with me!  

I am, however, old enough to accept there are some things I just have to accept!

Thanks for you help.
Kerry

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## greghsa

Easiest way to remember it is like this.

If you receive(IN) an invoice (INbox,IN tray etc.) then it is INPUT VAT.
If you send(OUT) an Invoice (OUTbox, OUT tray etc.) then it is OUTPUT VAT.

So if you buy an asset you will get (IN) an invoice so it will be INPUT.
(remember in Pastel to use Tax Type 05 as this is a capital expense)

Hope this helps.

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## DaisyGirl

Thanks Greg, I can wrap my head around the In (through the door) and Out (through the door) concept; just trying to see why what I owe is an Asset and what I can claim is a Liability!  (Some of us just don't think like you accountant types :-)

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## DaisyGirl

... and Greg, thanks for that 05 Tax help, I completely missed that one.  Big thanks!

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## DaisyGirl

Which code should Salaries & Wages go under? I've been using 00 but perhaps that's not right?

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greghsa (14-Sep-10)

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## greghsa

> Which code should Salaries & Wages go under? I've been using 00 but perhaps that's not right?


*To claim (Tax Type 01)* assuming that suppier/s are vat registered:
Accounting fees
Advertising
Bad Debts(Tax Type 04)
Cleaning Materials
Delivery Vehicles
Discount Allowed
Electricity & Water
First Aid expenses
Insurance
Legal Fees
Maintenance & repairs
Motor Vehicle Maintenance
Office Furniture & Equipment
Postage
Purchases fore resale
Security
Staff Training
Stationery & Printing
Subscriptions & Levies
Telephone, Faxes & Email
Toll Fees
Tools & Machinery

* What not to claim (Tax Type 00)*
Any personal expenses of owner
Car purchases
Depreciation
Donations
Entertainment
Interest
Medical Aid or Owner Medical Aid
Milk, Bread, Vegtables, Rice, Cooking Oil
Motor Vehicle licence
PAYE & SITE
Petrol & Diesel
Pension & Provident funds
Promotional Gifts
Salaries & Wages
Staff Tea & Refreshments
UIF
Any Vendor(Supplier) that is not registered for VAT.

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Dave A (14-Sep-10), pedrob (15-Sep-11)

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## greghsa

> Thanks Greg, I can wrap my head around the In (through the door) and Out (through the door) concept; just trying to see why what I owe is an Asset and what I can claim is a Liability!  (Some of us just don't think like you accountant types :-)


If you owe SARS it is a libility, if SARS owes you it is in asset.
Lets say you buy something for R50 + R7 VAT = R57
Now you sell it for R114 (R100 + R14 VAT)

Input    R7
Output  R14
Nett Effect is R7 Output (OUTput means you must pay OUT to SARS) 
[If the net is Input SARS must pay IN to your bank account !]

Might get a bit technical here (Sorry)
Accounting Entries
DR Purchases     R50
DR Vat              R 7
CR Supplier        R57

CR Sales           R100
CR VAT             R 14
DR Customer      R114

Net effect of Vat is  R 7 DR  + R 14 CR = R 7 CR  Therefore a liability

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## Dave A

I'd put it slightly differently - and I think this is a closer starting point:



> Input being an Asset when I owe it and Output being a Liability when my head sees it more as an Asset (because I can offset it against the Input VAT) is not sitting well with me!


The point of view for your input and output VAT accounts is your liability to *SARS* i.r.o. VAT - not the client or supplier.

For example, with a supplier you've incurred a liability of R50.00 for goods or services purchased and R7.00 for the VAT. You need to claim that VAT back from SARS, hence it's an asset.

The exact reverse applies when you're talking about invoices to clients. The VAT you collect from the client is owed to SARS, hence it's a liability.

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greghsa (15-Sep-10), rfnel (25-Nov-11)

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## DaisyGirl

Greg... thanks, but I don't see Wages there anywhere.  The 05 code had me thinking that maybe Wages falls under something other than 00?

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## DaisyGirl

Thanks tons, that's clear. Much appreciated.

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## greghsa

> I'd put it slightly differently - and I think this is a closer starting point:
> 
> The point of view for your input and output VAT accounts is your liability to *SARS* i.r.o. VAT - not the client or supplier.
> 
> For example, with a supplier you've incurred a liability of R50.00 for goods or services purchased and R7.00 for the VAT. You need to claim that VAT back from SARS, hence it's an asset.
> 
> The exact reverse applies when you're talking about invoices to clients. The VAT you collect from the client is owed to SARS, hence it's a liability.


LAYMENS Terms Thanks Dave.

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## Dave A

> LAYMENS Terms Thanks Dave.


One of the advantages of not being formally trained in these things  :Wink:

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## dellatjie

Actually, Milk, bread, vegetables etc should go against  02 (Zero rated) and interest and for example residential rental income against 03 (exempt income).

Another thing I like to do to make sure my turnover balances with my f/statements, is I create a seperate VAT type for debit and credit retuns..

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## Cherylv

I agree Dellatjie, but if the supplier is not registered for VAT, then we would use 00?

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## vieome

> Actually, Milk, bread, vegetables etc should go against  02 (Zero rated)


 white bread has VAT on it, me thinks. 

If using pastel the best thing to do, is to export 9500 VAT account for the period to excel sheet, in Excel sort sheet using column B  - sales together/ Purchases Together/ Journals/sales credits etc together.




*Output Vat:* 	Items	

Sales		
Sales Credits		 -   
Customer JNLS		
Adjustment to previous periods		 -   



*Input Vat :* 		Items 

Capital Goods		 -   

Other Goods & Services		
	Purchases	  
	Purchase returns	 -   
	Supplier JNLS	

	Cashbook Payments 1	  
	Cashbook Receipts   1	
	Cashbook Payments 2	
	Cashbook Receipts 2	
	Supplier Jnls	
	General JNL	
	Adj to previous periods	


Nett vat (Payable)/Refundable		(Diff between input and output VAT)

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## vanrooyenbonita@gmail.com

Good Afternoon,
Is there a way that I can see all the previous (updated) general journals that was passed in pastel. My vat control account does not balance with vat return, I have reconciled all other possibilities and my last check would be if there has been journals passed directly into the vat control account.

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## Accountant

Just a quick qsn. Help me understand why both cashbook receipts and payments are part of vat input

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## Andromeda

Receipts are to the extent that they are adjustments of expenses that have not been accounted for in some other way, like supplier credit notes. Off the top of my head refunds from insurers.....

All Outputs should stem from turnover, which is not accounted for via the cash book. 

Occasional sale of fixed assets? Suffice to say that a debtor and vat is raised and then the payment received is allocated to an accounts receivable.

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