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Value added tax in the income/expenditure accounting.

May 18, 2010 | 15,00 EUR | answered by Matthias Wander

The value-added tax is also recorded as 'costs' and 'revenues' in the income-statement. In a trading business, it simplifies as follows in my opinion:
Net revenue: 10,000,-
+ received VAT: 1,900,-
= Total revenue: 11,900,-
minus cost of goods sold and expenses, net: 8,000,-
minus input VAT (fictional): 1,200,-
= Profit: 2,700,-
Question: In my opinion, this is an exaggerated profit representation because the actual, economic profit is only 2,000,-. The difference in VAT of 700 euros must logically be paid to the tax office. How is this recorded in the income-statement so that it does not lead to an increased profit statement?

Matthias Wander

Dear inquirer,

Thank you for your inquiry, which I would like to answer based on your information and in the context of your involvement in an initial consultation.

Your calculation is correct. The advance payment of value-added tax to be paid to the tax office is (when paid) also a business expense. In your case, VAT 1,900, - minus input tax 1,200, - = 700, -.

As a result, the profit is 2,000, - will never be visible in the balance sheet, as the advance payment of value-added tax will be paid month(s) later depending on the reporting period.

I hope my explanations were helpful.

Best regards

Wander
Tax advisor