VAT on cash received and transitory assets/liabilities at the end of year

There are two methods, established by the Federal Tax Administration, for the collection of the Value Added Tax (VAT):

  • Method according to the issued invoices - the determination of the VAT amount takes place at the moment the suppliers' invoices are received and the clients' invoices are issued.
  • Method according to the cash received - the determination of the VAT takes place at the moment that received payments for invoices or the payment of invoices appear. All those subject to VAT that manage the accounting operations with this method (after receiving the authorization from the office in charge), need to comply with the following regulations:
  1. During the accounting period, clients and suppliers should not be entered.
  2. The income/expenses need to be entered at the moment the payment is being registered.
  3. The VAT code needs to be inserted on the same row as the income or expenses account.

Practical example showing how to enter transactions during the year

Note:
If you want to equally manage customers/suppliers, you can use the cost centers. In this case, the clients/suppliers management remains separated from the Balance Sheet.

As for the transitory assets or liabilities (invoices issued for income/expenses, but not yet received or paid), only at the end of the year, carrying forward of the outstanding invoices of suppliers and clients is allowed. These issues are defined by the VAT regulations (Wegleitung 2001 zur Mehrwertsteuer, Z 964, Seite 219).

Starting from here, we present you one of the possible solutions:

 

Transitory assets or liabilities es at the end of the year
At the end of the year, in order to exactly establish the profit or the loss of the accounting year, one needs to enter the transitory assets or liabilities:

  • Expenses and income that refer to received and issued invoices at the end of the year, including outstanding projects, that will be paid and received in the following year.

In this case, pay attention to not insert the expenses and income with the VAT code, for in the VAT report, the recoverable VAT and the VAT due have to be shown in the VAT report of the first quarter of the next year.

In order to establish just the part of the expenses and the income (so without VAT) and entering the transaction correctly, one has to:

 

In the Assets and Liabilities

  • In the Assets, open the account "Open client accounts"
  • In the Liabilities, open the account "VAT on open client accounts"
  • In the Liabilities, open the account "Open supplier accounts"
  • In the Assets, open the account "VAT on open supplier accounts"

In the expenses and income

  • In the expenses, open the account "Expenses for open supplier accounts"
  • In the income, open the account "Income for open client invoices"

In order to enter the transaction of the suppliers on 31.12....., one has to make an entry on several rows:

  • Enter in debit on the account "Expenses for open supplier accounts" the expense without VAT, without VAT code
  • Enter in debit, on the account "VAT on open supplier accounts" the recoverable VAT amount
  • Enter in credit, on the account "Open supplier accounts" the total amount (VAT included)

In the following year on 01.01..... the preceding operation needs to be closed, so the transaction is as follows:

  • Enter in debit, on the account "Open suppliers accounts" the total amount (VAT included)  
  • Enter in credit, the expense without VAT, without VAT code
  • Enter in credit, on the account "VAT on open supplier accounts" the recoverable VAT amount

At the moment the supplier's invoice is getting paid, the user has to enter the transaction as shown in the example at the beginning of this page, by inserting the VAT code as usual.

For the transitory client invoices, the same procedure is being applied, but by entering on the preconfigured accounts related to the open client accounts.

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