Scenario:
On20th April 20XX, Jemm Ltd bought a machine for £30,000 net for
company use and paid VAT on the purchase and half of the total amount was paid
through the bank account immediately and the balance will be paid at the end of
next month. What will be the double entry posting for this across the two
periods?
1. Double entry
posting:
posting:
20/04/XX
DR:
Machine account £30,000
Machine account £30,000
DR:
VAT account £6,000
VAT account £6,000
CR:
Bank account £18,000
Bank account £18,000
CR:
PLCA £18,000
PLCA £18,000
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.
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 with half of the total amount because bank account is paying
out only £18,000 now and the balance in the bank account is reducing; if an
asset is decreasing, we credit the relevant asset account.
have credited bank with half of the total amount because bank account is paying
out only £18,000 now and the balance in the bank account is reducing; if an
asset is decreasing, we credit the relevant asset account.
2. Double entry
posting:
posting:
31/05/XX
DR:
PLCA £18,000
PLCA £18,000
CR:
Bank account £18,000
Bank account £18,000
Reason:
The
PLCA is being debited because a liability being owed has now been paid, so the
creditors balance is reducing and if a liability is reducing we debit. We have
credited bank because bank account is now paying out the outstanding balance of
£18,000 and the balance in the bank account is reducing; if an asset is
decreasing, we credit the relevant asset account.
PLCA is being debited because a liability being owed has now been paid, so the
creditors balance is reducing and if a liability is reducing we debit. We have
credited bank because bank account is now paying out the outstanding balance of
£18,000 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 Friendly Team
The Training Place of Excellence Limited