ICAEW AF · Chapter 4 · Question 7 of 8
A VAT-registered business returns faulty goods to a credit supplier. The supplier's credit note is for £960, including VAT at 20%. What is the double entry to record the return?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Debit Trade payables £960, Credit Purchase returns £800, Credit VAT £160
Explanation
VAT = £960 x 1/6 = £160, so the net amount is £800. The amount owed to the supplier falls by the full £960, so trade payables are debited. Purchase returns are credited with the net amount, and the input VAT originally claimed is reversed by crediting the VAT account with £160.
More Sales tax (VAT) MCQs
- Q1A business registered for VAT sells goods on credit for £2,400 plus VAT at 20%. What is the double entry to record the sale?
- Q2A VAT-registered business receives an invoice for £5,436, including VAT at 20%. How much of this amount is VAT?
- Q3At the start of a quarter, a business owed £9,800 to the tax authority for VAT, which it paid during the quarter. In the quarter, output…
- Q4A VAT-registered business buys a machine for £18,000 plus VAT of £3,600. It also pays delivery of £500 plus VAT of £100. All the VAT is…
- Q5A business that is NOT registered for VAT buys inventory for £1,200 plus VAT of £240. At what amount should the purchase be recorded?