Create journals

A journal is used for recording non-regular transactions, for example the depreciation of a fixed asset or writing off a bad debt. You can also use journal entries to transfer values from one nominal account to another. When you create a journal entry you must follow the principles of double-entry bookkeeping; for every debit total there must be a corresponding credit balance. This can be made up of several credits as long as the overall total balances.

Journal entries don’t normally affect the VAT Return and are used to move values from one nominal account to another. However, if required, you can choose to include them on your VAT Return. How it affects the VAT Return depends on how you enter the journal, for more information see To include a journal on the VAT Return.

To post a journal entry

  • 1. Click more > Journals > Create Journal
  • 2. Complete the following information:
*Date* * Enter the date you want to use for the journal.
Journal Type * Choose the relevant option. For more information about how the type of journal affects VAT journals, please see To include a journal on the VAT Return below.
*Reference* * Enter a reference for the journal.
Description If required, enter a description for the journal.
Display Name * Choose the nominal code you want to use for the first line of the journal.
Debit If this journal line is for a debit value, enter the value here and leave the credit as 0.00.
Credit If this journal line is for a credit value, enter the value here and leave the debit as 0.00.

The total value of credits and debits must balance before you can save the journal.

  • 3. Click Save.

To include a journal on the VAT Return

How a journal affects the VAT Return depends on the VAT scheme in use and the transaction Type.

For a Journal to affect a VAT Return (Standard/VAT cash accounting schemes) Purchase Invoices Unpaid or Sales Invoices Unpaid must also be included in the Journal, in addition to VAT on Purchases/Sales or one of the VAT Holding accounts.

Transaction Types
  • Payment – If you choose Payment as the transaction type and you use the standard or flat rate invoice based VAT scheme, the journal is not included on the VAT Return. If you use the VAT cash accounting or flat rate VAT cash scheme, the transaction is included on the VAT Return.
  • Invoice – If you choose Invoice as the transaction type and you use the standard or flat rate invoice based VAT scheme, the journal is included on the VAT Return. If you use the VAT cash accounting or flat rate VAT cash scheme, the transaction is not included on the VAT Return.
  • Transfer – A transfer from one nominal account to another isn’t applicable to VAT.
  • Adjustment – Adjustments are not applicable to VAT and should only be used when adjusting or moving values between nominal accounts.
VAT holding accounts

If you use the VAT cash accounting or flat rate VAT cash scheme, when you record the sale or purchase using the Invoice transaction type, you need to record the VAT liability in the VAT on purchases or VAT on sales holding accounts. This is to recognise that a transaction has taken place but the payment has not yet been received so no VAT is currently due.

Once the payment has been made, you need to post another journal to move the liability from the relevant holding account to either the VAT on Purchases or VAT on Sales.

To ensure VAT is accounted for correctly, we recommend creating an invoice through the Sales or Expenses option instead. Once you’ve done this, you can then record a payment against the relevant invoice.

VAT cash accounting example

To record the sale of goods with an Invoice transaction type, you can post the following journal:

Display name Debit Credit
Sales invoices not paid 120.00 0.00
VAT on Sales Holding account 0.00 20.00
Other income 0.00 100.00
Total 120.00 120.00

Once the payment has been received, you can post the following journal with a Payment transaction type:

Display name Debit Credit
Sales invoices not paid 0.00 120.00
Cash at bank 120.00 0.00
VAT on Sales Holding account 20.00 0.00
VAT on Sales 0.00 20.00
Total 140.00 140.00

If the transaction is zero rated or VAT exempt, include a VAT on Sales or Vat on Purchase account with a journal value of 0.00. This ensures the transaction is picked up on the VAT Return but the VAT is notional, so the net value is included on the return.

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