Talat Ltd has just bought a machine for £17,000 net for company use and paid VAT on the purchase and the total amount will be paid next month. What will be the double entry posting for this?
Double entry posting:
DR: Machine account £17,000
DR: VAT account £3,400
CR: PLCA £20,400
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 £17,000; 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.
Purchases ledger control account (PLCA) because the company hasn’t paid for the machine and the full amount is currently outstanding and this is a liability. Hence the liability is increasing, and if a liability is increasing, we credit the relevant liability account.
PLCA is also called Creditors Control Account/ Trade Payables Account
The Friendly Team
The Training Place of Excellence Limited