Tax on input and salaries


I am not a professional accountant yet but am able to relate with the accounting package.

Have two questions, after creating a payslip for an employee, his gross is 3500$ then after deductions the net comes to 2868.25$, after posting the transaction, the income statement captures the gross amount of 3500.00$ under salaries & wages, why not the net salary of 2868.2

Then Vat on input, why is it a payable, when it’s the company which has suffered tax and will need to claim the amount ?


Accounting records are from your company’s perspective.

Because the entire amount was or will be paid by the company. The fact that the employee didn’t receive it all is immaterial. Depending on what the deductions were for, they may end being allocated to different expense accounts.

Because you will presumably pay it to the tax authority. The fact that you owe this makes it a liability. When actually paid, the payable is cleared by the payment transaction, transferring the record to the appropriate expense account. From there, you will be able to report it as a deduction. (Depending on timing of returns and payments, and exact tax law in your jurisdiction, the deduction may be claimable based on the VAT being owed, even though not paid, if you are reporting under accrual accounting. Your accountant should advise you on this.)