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Value Added Tax and Accounting Treatment (VAT)



VAT and accounting treatment

Accounting treatment for VAT

In this article, we will learn

  • how to apply VAT in practical terms starting from the form of the tax invoice and its terms and what is the output tax and what is the input tax. 
  • How the accounting treatment for the purchase and sales invoices, the business abstract, the subcontractors, the transport bills, the fixed assets purchases, Adding and extracting all reports to be submitted to taxes Tax Invoice

 a tax invoice 

must be issued at the time of sale and receipt of a tax purchase invoice at the time of purchase in accordance with the legal form and the conditions specified by law as follows

  • Serial No
  •  Editor's Date 
  •  Vendor Name Address and Tax File Number 
  • Buyer's Name, Address and Tax File Number if any, or national number if he does not have a tax number A detailed statement of the goods carried out by the quantity, price,

The three most important things to pay attention to in the tax invoice

  •  the invoice number
  •  the buyer's name and address
  • the tax file number of the seller and buyer

The general form of a tax sales invoice

What is the output tax ?

It is a tax that the seller deducts from the buyer when selling a taxable goods or services and the most important forms in the contracting sector:-

  • Is a commercial sale bill to a customer's bill of transfers 
  • Bill is the bill of sale of a comprehensive tax return or tax return only to the business owners
  • The value of the works submitted to the owners, such as the Ministry of Transport, is the bill of the work of my people
  • It is the value of works carried out with parents or private parties such as finishing and handing over a key

Practical cases of added tax and accounting guidance for each case


The accounting guidance for the sales invoice described above

Accounting guidance for a comprehensive material invoice

The invoice is the transfer of 12 tons of cement at a sale price per ton 1200 pounds and a freight transfer per ton 200 pounds and an added value tax 14% on the total invoice and it is clear that:-

 the value of the materials = 14400 pounds 

the value of transport = 2400 pounds 

the value added tax = 2352 pounds 

and the accounting guidance as follows


Accounting guidance for business abstract


The following guidance illustrates a business abstract in its simplest form and you can see a detailed explanation of how to prepare a business extract and accounting guidance


Accounting guidance for my business bill


Assuming that the company has carried out the finishing and maintenance work for the customer villa najran company solutions, the amount of 7380 pounds and the value of the added tax 14% of the value of 1033 pounds and accounting guidance as follows

What is the input tax ?


Is a tax paid on purchases used in the production of the company's taxable activity and deducted at the first sale required to accept 

the deduction and clearance of the purchase tax should be related to the company's activity and related to taxable sales and the 

purchases are made in accordance with a tax invoice.


 It also notes from the text of the executive regulation of the VAT law that it is interested in the invoice and the purchasing association 

of the company's activity, for example when purchasing cement for a concrete factory. Cement is linked to the company's activity and 

is associated with a reinforced concrete product subject to tax. If I am a equipment leasing company and a cement is purchased to build 

a room for workers' housing, The value of the tax is not subject to clearing


Accounting guidance for purchase invoice


Purchase 5 tons of cement at a price of 1250 pounds per ton of supplier Babel chains and VAT 14% worth 875 pounds


The Company is entitled to recover or recover a tax paid on its purchases through a set-off with the tax collected from the sales:-

            Sales returns are in accordance with several conditions

  • The goods have already been received and in the condition that they were sold and registered in the books and refunded to the buyer, including the tax or to the account of the buyer. 
  • Issuance of discount notice bearing a serial number showing the seller's data and address, tax file number and name and address of the buyer and the original tax invoice number and date

          Floating debt according to several conditions

  • The forward sales shall be backed by tax invoices 
  • proving that the debt has become non-existent through the death of the buyer, bankruptcy or disappearance or benefited from legal means

        Purchase of machinery and equipment

The tax payable in the purchase of machinery and equipment used for the production of a taxable commodity, for example, the purchase of a tractor for work in the concrete plant, shall be refunded here. The tax paid during the purchase of the equipment shall be recoverable. However, if a tractor is disposed of five years prior to the sale or used in non-taxable goods, The tax value is once taxable

Statement of VAT


Note that the statement of the tax of the additive the creditor party represents

 (the output tax of the bill of sale - Business Invoice - Business Abstract - Transport bill )

 while the input tax represented in the purchase invoice and there are discount notices and addition of the value of the tax return sale and repurchase


Tax payable = Output tax - Input tax


The books and records to be provided in the company 

of the most important books and records to be provided The tax summary book shows total sales and total purchases without tax and total tax for sales, purchases and tax to be paid and the form of the report as follows

Detailed report on VAT movement during the period

                            The latest update of the value added tax in the Babel program for contracting



Video of the administration of the added tax and accounting treatment

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