Purchases · Level: Exam
Journal entry: Purchase with a VAT-inclusive amount
The amount given already includes VAT. Work out the net amount first: gross divided by 1.2.
Worked example
We buy goods on credit for £1,380.00 including 20% VAT.
Correct journal entry
Purchases £1,150.00, Input VAT £230.00 / Trade payables £1,380.00
Debit
Purchases£1,150.00
Input VAT£230.00
Credit
Trade payables£1,380.00
Why?
- Purchases: expense incurred → debit
- Input VAT: asset increases → debit
- Trade payables: liability increases → credit
Calculation
- Net: £1,380.00 ÷ 1.2 = £1,150.00
- VAT: £1,380.00 − £1,150.00 = £230.00
Typical mistake
Taking 20% of the gross amount; the right way is gross ÷ 1.2.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
We buy goods on credit for £9,900.00 including 20% VAT.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for purchase with a vat-inclusive amount?
Example: Purchases £1,150.00, Input VAT £230.00 / Trade payables £1,380.00.
How do I recognise this case?
The amount given already includes VAT. Work out the net amount first: gross divided by 1.2.
What is the typical mistake?
Taking 20% of the gross amount; the right way is gross ÷ 1.2.