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Tax – Debit Note and Credit Note for Purchase and Sale Return

Tax – Debit Note and Credit Note for Purchase and Sale Return

If ABC Company sold goods to XYZ Company, later XYZ Company returned goods back to ABC Company.

What tax effect ?

  • ABC Company will issue credit note for sale return, and record in sale journal as negative sale and VAT output for tax purpose.
  • XYZ Company will issue debit note for purchase return, and record in purchase journal as negative purchase and VAT input  for tax purpose.

Example 

On 1 January 2018, ABC Company sold goods to XYZ Company of $1,100 (including VAT) for cash , but 25 February 2018, XYZ Company returned goods back to ABC Company.

Make Accounting Record

Solution

1 January 2018

ABC Company

Dr. Cash……….1,100

Cr. Sale…………………1,000

Cr. VAT output………..100

XYZ Company

Dr. Purchase…..1,000

Dr. VAT input……100

Cr. Cash……………………1,100

25 February 2018

ABC Company

Dr. Sale Return…1,000

Dr. VAT output……100

Cr. Cash…………………….1,100

XYZ Company

Dr. Cash………………1,100

Cr. Purchase return………1,000

Cr. VAT input…………………100


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