Sales · Level: Exam
Journal entry: Sale with a VAT-inclusive amount
The invoice amount already includes VAT. Work back to the net amount for Sales and Output VAT.
Worked example
We sell goods on credit to Wright plc for £11,640.00 including 20% VAT.
Correct journal entry
Trade receivables £11,640.00 / Sales £9,700.00, Output VAT £1,940.00
Debit
Trade receivables£11,640.00
Credit
Sales£9,700.00
Output VAT£1,940.00
Why?
- Trade receivables: asset increases → debit
- Sales: income earned → credit
- Output VAT: liability increases → credit
Calculation
- Net: £11,640.00 ÷ 1.2 = £9,700.00
- VAT: £11,640.00 − £9,700.00 = £1,940.00
Typical mistake
Adding VAT on top of the gross amount instead of taking it out.
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 sell goods on credit to Hall Builders for £1,020.00 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 sale with a vat-inclusive amount?
Example: Trade receivables £11,640.00 / Sales £9,700.00, Output VAT £1,940.00.
How do I recognise this case?
The invoice amount already includes VAT. Work back to the net amount for Sales and Output VAT.
What is the typical mistake?
Adding VAT on top of the gross amount instead of taking it out.