At the beginning of a VAT period, a firm which buys and sells exclusively on credit owed £2,000 to HMRC in respect of VAT.
Its credit sales and credit purchases for the period, inclusive of VAT at the rate of 20%, amounted to £72,000 and £48,000 respectively.
During the period the firm paid £3,000 to HMRC in respect of VAT.
What was the balance carried down on the firm‘s VAT account at the end of the period?
Select ONE answer:
- £3,000 Debit
- £3,000 Credit
- £3,400 Debit
- £3,900 Credit
Show your workings to arrive at your answer, and explain and justify your reasons:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 1
VAT on sales = £72,000/ 120 * 20 = £12,000
VAT on purchases = £48,000/ 120 * 20 = £8,000
VAT balance b/d (credit entry) = £2000
VAT on Sales (credit entry) = £12,000
Total Credit entries = £14,000
VAT on purchases (debit entry) = £8,000
Bank payment to HMRC (debit entry) = £3,000
VAT balance c/d (debit entry) = £3,000
Total debit entries = £14,000
- Correct
- Incorrect
- Incorrect
- Incorrect
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