VAT: Accounting record of sales returns.

Tax regulations allow VAT generated on sales that are later cancelled, rescinded or terminated by the customer to be deducted from the total balance due for this tax. For accounting purposes, an account can be created to control this value, which will then be transferred to the form.

Next, we will answer the following question: How is the accounting handling of VAT when refunds are made on sales?

To solve this question we begin by clarifying that the International Standards do not define a specific treatment for the accounting of sales taxes, because this issue depends on the tax rules of each country.

In the case of Colombia, this issue is mentioned in the tax requirements, since taxpayers are allowed to reduce the “VAT resulting from returns on sales annulled, rescinded or resolved when they were subject to tax” from the balance payable. For this purpose, this value must be included in line 79 of the deductible tax section of form 300.

Although such tax requirements do not explain the accounting for these transactions, we can infer the following:

–Each time the company makes the sale of a product or service taxed with VAT, it must account for the tax generated in a liability account where the obligation it has before the State to transfer that value is reflected.

–When the customer makes a refund on his purchase, the company is no longer obliged to pay this VAT, but this does not mean that it must cancel the liability already recognized due to the specific treatment defined by the tax regulations on the subject.

One way to control the values to be taken to the VAT box mentioned above is to create an account called “VAT resulting from refunds”, so that all values generated in these operations are taken to this account. When the taxpayer must file the VAT return and prepare the corresponding accounting record, he/she will be able to credit the amount accumulated during the period. It is necessary to create this account, as it must be reported in a separate line in the return.

A suggested record for each time a refund is filed may be as follows:

Source: Update