Yu Limited records a VAT inclusive figure for sales of £105,000 for the month of August. All sales are made on credit and VAT is charged at the rate of 20% on the net sales value of each sale. What is the correct double entry to record these sales?

Question

Quizplus · Accepted Answer

The correct double entry is to debit trade receivables for the VAT inclusive amount (£105,000), credit sales for the net amount before VAT (£87,500), and credit VAT for the VAT amount (£17,500). The VAT is calculated as 20% of the net sales value, which means the net sales value is £87,500 (£105,000 / 1.2), and the VAT is £17,500 (£87,500 * 20%). Sales are made on credit, not cash, so trade receivables are debited.

Yu Limited Records a VAT Inclusive Figure for Sales of £105,000