Thursday, 21 July 2016

A BASIC TEST ON YOUR DOUBLE ENTRY


Scenario:
Jemm Ltd has just bought a machine for £30,000 net for company use and paid VAT on the purchase and the total amount was paid through the bank account immediately. What will be the double entry posting for this?

Double entry posting:
DR: Machine account           £30,000
DR: VAT account                 £6,000
CR: Bank account                 £36,000

Reason:
The machine account has been debited because machines are increasing and if an asset is increasing we debit the relevant asset account and we have debited VAT account with 20% of £30000; because VAT on purchases is an asset which can be claimed back from HMRC and the amount to be claimed back is obviously increasing due to this additional purchase.

We have credited bank because bank account is paying out money and the balance in the bank account is reducing; if an asset is decreasing, we credit the relevant asset account.

REMEMBER:
DEAD/CLIC

 Yours Sincerely,
The Friendly Team

The Training Place of Excellence Limited

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