Income Statement

[AmithS]

Hi Everyone,

What is the norm when completing and income statment:
1. Including VAT of all items (Sales, Cost of Sales and Expenses)
2. Or excluding all VAT ?

I have seen people do it in both ways and am not sure for the reasoning behind it.

[duncan drennan]

If you are VAT registered then the cash you pay and receive for VAT is just being kept until you need to pay it over to SARS. It is not an expense and it should be left off of the income statement.

If you are not VAT registered, then the VAT which you pay to suppliers is a real expense for your business. You never charge clients VAT, and are not able to directly recoup the VAT payments to suppliers. In that case you would not track VAT and it would be included in the amounts on your income/expenses statement.

[AmithS]

Thanks for that explanation, it makes better sense now.