Pastel Accounting Tip: Journal Contras

[Neville Bailey]

Hi Mike,

With "specialised" entry types, such as cashbook journals, customer journals and supplier journals, the system knows how to process VAT transactions correctly.

For example, in the case of a supplier journal, the system "knows" that the expense (debit) line will reflect the VAT exclusive amount and that the VAT will reflect under input tax in the VAT report, by virtue of the fact that supplier transactions generate input tax transactions.

However, in the case of General Journals, the system has no way of knowing whether output or input tax is involved, as there is no flag (such as supplier, customer or cashbook payment) to guide it. In addition, the system cannot deduce which of the line items must be debited/credited as VAT inclusive or VAT exclusive.

I have found a trick that always seems to work, and that is to allocate the journal item to the balance sheet leg of the transaction (such as a loan account to be credited), with the appropriate VAT code, and to use the contra account field for the income statement leg of the transaction (such as an expense item to be debited). The trick will not work if you create the income statement leg of the transaction as a separate line item in the journal.

Hope this helps.