Input and Output Tax Definition
Input / Output Tax:
At month-end, Input tax is offset with output tax and balance have to pay/receive the goverment.
Some countries allow setoff of output tax against inout tax which is called VAT in European countries and MODVAT in India ( hta is tax payable on sold items against tax paid against bought out items) based on materials and products.
Input Tax is receivable account and Output Tax is liability account. Output tax is periodically set off against input tax.
Input Tax is occurred when purchasing goods or service
Dr. expense / Inventory acc
Dr. Input Tax (Receive from goverment)(Paid to vendor as tax)
Cr. AP
Output Tax is occurred when sale goods or service
Dr. AR
Cr.Revenue
Cr.Output Tax (Pay to goverment)
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