How does a Canadian business record VAT charged by euro vendor in quickbooks

I do the bookkeeping for my husbands business and I am having difficulties figuring out how to record the VAT charged by my vendor in Sweden. They drop shipped my order directly to my customer in Germany, and they have told me I need to pay VAT, which I can claim back.

How do I post this in quickbooks when entering their invoice? Do I create an "other current liability" named Sweden VAT and enter it on the 'expenses' tab and the product on the 'items' tab?
This created a negative balance for me, showing I am owed $3,000, when it should read I owe it.
I know I'm missing something sitting right in front of my face.

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I'm not terribly familiar with Canadian taxes, but I'm assuming your VAT - or Value Added Tax, is like our U.S. sales tax.

When we sell something here in the U.S., we post the sale like this:

Debits:
Cash (or Accounts Receivable) and Sales Tax Payable
Credit:
Sales

So an example would be:

Cash........$212
Sales Tax Payable......$12
Sales..................$200

I'm assuming your VAT would work like this just kind of backwards, because it's on a purchase, not a sale. And it's an expense (you're charged for it from your vendor) and a payable (you have to pay it also).

Am I correct in that assumption?

So record your items purchased, the tax payable, and your cash paid (or accounts payable).

Like this (I'm just making this up - let's say you purchased $1500 worth of materials and that includes $500 in VAT):

Materials Purchased....$1500
VAT Taxes Expense......$ 500
VAT Taxes Payable................$500
Cash............................$1500

Again, I'm just trying to help here, we don't have the VAT here in the U.S. so I'm just going on instinct.

Hope this helps!

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Mar 03, 2013
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Thanks, David!
by: Anonymous

As I said a couple of times in my response above, I am not from Canada and therefore not well versed in VAT, so Thanks for helping!

That's what this site is all about, helping small business owners with their bookkeeping and accounting problems.

Thanks again David!

Kathy

Mar 02, 2013
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Recording VAT
by: David

Hello,
Actually, to record the VAT you paid, you should not use the entry above:
Materials Purchased....$1500
VAT Taxes Expense......$ 500
VAT Taxes Payable................$500
Cash............................$1500

You just need to enter this:
Materials Purchased...........$1500
VAT Taxes Expense (paid)......$ 500
Cash (or accounts payable) ...................................$2000

If you can claim back the VAT paid, you will use a current assets account for the $500, if you cannot, it will be an expense account.
Once you claim back the VAT, you will clear the current assets account.
Hope this helps!

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