VAT · Level: Exam
Journal entry: VAT refund
If input VAT is higher than output VAT, the business gets money back: output VAT is cleared and the bank rises.
Worked example
Output VAT £2,584.90, Input VAT £6,481.99. Offset the two; HMRC refunds the excess input VAT straight into our bank account (one entry).
Correct journal entry
Output VAT £2,584.90, Bank £3,897.09 / Input VAT £6,481.99
Debit
Output VAT£2,584.90
Bank£3,897.09
Credit
Input VAT£6,481.99
Why?
- Output VAT: liability decreases → debit
- Bank: asset increases → debit
- Input VAT: asset decreases → credit
Calculation
- Refund: £6,481.99 − £2,584.90 = £3,897.09
Typical mistake
Crediting Bank although money comes in.
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
Output VAT £6,427.02, Input VAT £14,932.72. Offset the two; HMRC refunds the excess input VAT straight into our bank account (one entry).
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 vat refund?
Example: Output VAT £2,584.90, Bank £3,897.09 / Input VAT £6,481.99.
How do I recognise this case?
If input VAT is higher than output VAT, the business gets money back: output VAT is cleared and the bank rises.
What is the typical mistake?
Crediting Bank although money comes in.