Module 1 - Payroll and Monthly SARS Summary

Summary of module 1 - Paroll and Monthly SARS

1. ?????? Topic: Basic Bookkeeping and VAT
?????? Purpose of this Section
This section revises the fundamentals of bookkeeping that form the
foundation for processing payroll and statutory returns (like VAT201,
EMP201, etc.).
It explains the role of the bookkeeper, how accounting information
flows through the system, and how VAT applies to source documents.
?????? 1. Role of the Bookkeeper
Every business — whether a sole proprietor, partnership,
company, or close corporation (CC) must keep accurate
accounting records.
The bookkeeper records all transactions, prepares summaries,
and ensures statutory returns (like VAT201 and EMP201) are
submitted on time.
Bookkeepers handle source documents such as invoices, bank
statements, purchase orders, and deposit slips.
In companies and CCs, an accounting officer is often appointed
to oversee these functions.
Bookkeepers use either manual systems or computerized
accounting packages (e.g. Pastel, Sage, Xero).
?????? Key idea: Bookkeeping provides the information needed to produce
meaningful monthly and annual financial reports; it’s the language of
business.
?????? Integration Task 1.1

2. Research the IFRS and their impact on South African businesses.
IFRS = International Financial Reporting Standards (global set
of accounting standards).
Previously, South Africa used GAAP (Generally Accepted
Accounting Principles) and IAS (International Accounting
Standards).
IFRS helps ensure that financial reporting is consistent
internationally.
These standards influence how terms such as debtors, creditors,
sales, and trading stock are recognized and reported in South
Africa.
?????? 2. Source Documents
Source documents are the original evidence of transactions — the
first step in the bookkeeping process.
They form the basis for recording entries in journals and ledgers.
Common examples:
Tax invoices
Credit notes
Cash slips
Receipts
Bank deposit slips
Petty cash vouchers
Purchase orders
Statements
Bookkeepers must always check that source documents are accurate,
complete, and valid before recording.

3. ?????? 3. Tax Invoices and Credit Notes
➤ Tax Invoice
Records a sale of goods or services (cash or credit).
Required for all VAT vendors whenever goods/services are sold.
Must meet SARS requirements (specific information required).
Full tax invoice: required when the supply is more than R5 000.
Abridged tax invoice (cash slip): allowed when the supply is
between R50 and R5 000.
No invoice is required for sales under R50.
A valid tax invoice must include:
oSeller and buyer details
oVAT registration numbers
oUnique invoice number and date
oDescription and quantity of goods/services
oAmount charged and VAT amount
➤ Credit Note
Issued when a sale is cancelled, goods are returned, or an
allowance is granted.
It reverses part or all of a tax invoice.
It must contain the same details as the original tax invoice.
Used to reduce sales and VAT payable.
?????? 4. Cash Transactions
A cash invoice indicates the sale was paid immediately (cash,
card, or debit).
Cheque payments are no longer accepted as of 1 January 2021.
For small transactions ( R5 000
≤
), a cash slip (abridged tax
invoice) can be used.

4. ?????? 5. Pro-forma Invoices and Quotations
A quotation is an estimate of cost before a sale occurs.
When a buyer accepts, the seller issues a pro-forma invoice (a
confirmation document, not a real tax invoice).
Once the goods are delivered, a proper tax invoice replaces the
pro-forma.
⚠️ Both seller and buyer must check invoices carefully for accuracy
(amounts, VAT, terms, and details).
?????? 6. Key Bookkeeping Control
Always issue invoices with duplicate copies:
oOriginal → customer
oDuplicate → seller’s records
The duplicate supports the bookkeeping entry, while the original
serves as customer proof.
Ensures arithmetical accuracy, prevents fraud, and helps
reconcile VAT records.
✅ Summary of Key Terms
Term Meaning
Debtors
Customers who owe the business money (Accounts
Receivable).
Creditors
Suppliers the business owes money to (Accounts
Payable).
Trading StockGoods bought for resale.
GAAP / IFRS / Accounting standards governing how transactions are

5. Term Meaning
IAS recorded and presented.
Tax Invoice
Evidence of a sale (cash or credit) required for VAT
purposes.
Credit NoteDocument reversing or reducing a sale.
Pro-forma
Invoice
Preliminary document confirming an order (not for
VAT).
Cash Slip Simplified tax invoice for sales R5 000.
≤
?????? Basic Bookkeeping and VAT (Pages 4–7 Summary)
?????? 1. Practice Exercise (Quotation → Order → Tax Invoice)
This activity demonstrates the sequence of sales documentation used
in a typical transaction.
Example:
On 21 July 20.8, Pioneer Enterprises sold goods to Danube
Traders for R9 294 excl. VAT (goods previously bought for R6 196
excl. VAT).
Process involved:
1.Quotation – Customer (Danube Traders) requests written
price info.
2.Order – Customer places an order referencing the
quotation.
3.Tax Invoice – Seller issues the formal invoice (after the
order is confirmed).
4.Payment made by credit card (cash sale).
Key principle: Ensure information is consistent across all documents
— same quantities, prices, VAT, and totals.

6. ?????? 2. The Cash Receipt
Used to record the receipt of cash (from sales, debtors,
donations, or owner’s capital contribution).
Not a valid VAT document — VAT is recorded at the point of sale
(when the invoice was issued).
Cash receipts are used for proof of payment, donations
received, or when debtors pay their accounts.
Always retain a duplicate copy for bookkeeping records.
?????? 3. The Deposit Slip
Used when the business deposits cash into the bank.
Shows notes, coins, and cheques (though cheques are no longer
accepted since 2021).
Each deposit slip supports the Cashbook Receipts Journal (CBR)
entry.
Debit and credit card payments are not included in manual
deposit slips because they’re processed electronically via
Speedpoint and reflected directly in the bank statement.
?????? Practice Example:
Southern Wholesalers deposited R3 110.00 in notes and R5.42 in
coins on 26 June 20.7.
The exercise requires completing a bank deposit slip showing:
Date
Depositor name and contact details
Total amount deposited
Bank account details (Africa Bank, Mowbray Branch, Acc. No.
9856412)

7. ?????? 4. The EFT (Electronic Funds Transfer) Proof of Payment
EFTs are now the most common payment method .
Provides immediate electronic proof that payment was made.
The proof of payment is not a valid VAT document — VAT must
still be supported by a valid tax invoice.
A proof of EFT typically includes:
Heading: “Notification of Payment”
Payer and recipient bank details
Amount, date, and time of payment
Reference number for confirmation
Name of payer and beneficiary
⚠️ Always request the tax invoice first, then process EFT payment to
ensure VAT compliance.
?????? 5. The Petty Cash Voucher
Used to record small cash payments (e.g., stationery, parking,
small repairs).
Supports the Petty Cash Journal (PCJ).
The petty cash box holds a small float for daily expenses.
Each petty cash voucher must have:
oDate
oAmount
oDescription/purpose of expense
oPerson receiving the cash
oSignature for approval

8. ?????? 6. The Journal Voucher
Used to record non-cash adjustments or corrections directly in
the General Journal (GJ).
Internal source document that authorises entries like:
oDepreciation
oBad debts written off
oError corrections
oAdjustments between accounts
?????? 7. Subsidiary Journals
These journals group similar transactions together so totals can be
posted to the General Ledger more efficiently.
Name of Journal
Abbreviatio
n
Type of
Transaction
Main Source
Document
1. Cashbook
Receipts
CBR Money received
Duplicate cash slip,
deposit slip, cash
invoice
2. Cashbook
Payments
CBP Money paid
EFT proof of payment,
supplier invoice
3. Petty Cash
Journal
PCJ
Small cash
payments
Petty cash voucher
4. Creditors
Journal
CJ
Credit
purchases
Supplier tax invoice
5. Creditors
Allowances
Journal
CAJ
Returns to
suppliers
Credit note
6. Debtors JournalDJ Credit salesTax invoice
7. Debtors
Allowances
DAJ Returns from
customers
Credit note

9. Name of Journal
Abbreviatio
n
Type of
Transaction
Main Source
Document
Journal
8. General JournalGJ
Adjustments /
other
Journal voucher
?????? Tip: The total of each journal is posted to the General Ledger at
month-end, not each transaction individually — saving time and
reducing errors.
?????? 8. The General Ledger
The main accounting record where all transactions from
journals are summarized.
Contains accounts grouped by type: Assets, Liabilities, Owner’s
Equity, Income, and Expenses.
Each account shows debits and credits according to accounting
rules.
Example layout (from Figure 1.1 in your book):
Assets Liabilities Owner’s Equity
Non-current assets:
Land, buildings,
vehicles, equipment
Non-current liabilities:
Loans, mortgage
bonds
Capital
Current assets: Trading
stock, debtors, bank,
cash
Current liabilities:
Creditors, bank
overdraft, VAT output
Drawings
Income: Sales, rent,
commission
Expenses: Wages,
insurance, telephone,

10. Assets Liabilities Owner’s Equity
fuel, stationery
?????? Key Principles
Double-entry principle: Every debit has a corresponding credit.
Subsidiary journals simplify recording; General Ledger
summarises the business’s financial position.
Assets = Owner’s Equity + Liabilities (the accounting equation
still applies).
Journals feed into Trial Balance, which leads to Financial
Statements.
?????? Exam Focus Points
1.Know which journal to use for each transaction type.
2.Understand which source document supports which journal.
3.Be able to classify accounts under Assets, Liabilities, Equity,
Income, or Expenses.
4.Know how VAT affects sales and purchases (Output vs Input VAT).
5.Remember cheques are no longer a valid payment method.
?????? Section: The Accounting Equation and Financial Elements
⚖️ 1. The Accounting Equation
The foundation of accounting is the equation that must always
balance:

11. Assets = Owner’s Equity + Liabilities
or rearranged as:
Owner’s Equity = Assets Liabilities
−
➡️ This equation represents what the business owns (assets) and owes
(liabilities) and what remains for the owner (equity).
➡️ Every financial transaction recorded must affect this equation in a
way that keeps it balanced.
?????? 2. Assets
Formal definition (from IFRS):
“An asset is a present economic resource controlled by the business as a
result of past events, and from which future economic benefits are
expected to flow to the business.”
Simplified:
Assets are everything the business owns that can bring in money
or be turned into money.
Assets have value and can be used to help generate income.
Two practical definitions (in layman’s terms):
1.All cash on hand and items that can be exchanged for cash in the
future.
2.All potential inflows of cash or benefits expected to enter the
business.

12. ?????? Important Clarifications:
Assets retain value or potential to earn profits.
Expenses lose value when consumed (e.g., water, electricity).
Example:
oGoods bought for R5 000 and sold for R7 000 → gross profit
= R2 000.
oThat R2 000 contributes to gross profit before other
expenses are deducted.
?????? 3. Classification of Assets
Assets are divided into Non-current (> 1 year) and Current ( 1 year)
≤
.
Non-current assets (fixed assets)
Used for more than a year; not easily turned into cash.
Examples:
oLand & Buildings
oVehicles
oMachinery / Equipment
oLong-term investments (fixed deposits, endowment
policies)
Current assets
Expected to be converted to cash within 12 months.
Also called short-term assets.
Examples:
oTrading stock (on hand)
oDebtors control (customers who owe the business)
oBank account (balance)
oCash float
oVAT input (owed by SARS to the business)

13. ?????? 4. Liabilities
Definition:
Liabilities are the debts or financial obligations of the business.
If the business owes someone money, that amount is a liability.
Liabilities are also divided into Non-current and Current:
Non-current liabilities
Debts not expected to be settled within one year.
Examples:
oLong-term loans
oMortgage bonds
oThe long-term portion of any loan
Current liabilities
Debts expected to be settled within a year.
Examples:
oCreditors (control account for suppliers)
oShort-term loans
oBank overdraft
oVAT output (owed to SARS)
⚠️ Note: VAT output is a current liability, because the business must
pay it to SARS within the month.
?????? 5. Owner’s Equity
Definition:

14. Owner’s Equity represents the owner’s wealth in the business. It equals
total assets minus total liabilities.
It shows how much would remain for the owner if all assets were
sold and all debts were paid.
Reflected in the Statement of Financial Position (Balance
Sheet).
Components of Owner’s Equity
1.Capital – Money or assets invested by the owner.
2.Drawings – Withdrawals made by the owner for personal use
(reduce equity).
3.Profit/Loss – Increases or decreases in equity from business
performance.
?????? 6. Income and Expenses
Income = Amounts earned through normal business activities
(sales, service income, rent, interest).
Expenses = Costs incurred to generate that income (wages,
electricity, insurance, fuel).
Expenses decrease equity; income increases equity.
The difference between income and expenses = Net Profit or
Net Loss.
Profit = Income Expenses
−
Drawings and capital are not part of the profit calculation.
?????? 7. Relationship Between Elements

15. Element Increases Decreases
Shown On
Statement Of
Assets Debits Credits Financial Position
LiabilitiesCredits Debits Financial Position
Owner’s
Equity
Credits (capital,
profit)
Debits (drawings,
loss)
Financial Position
Income Credits — Profit and Loss
Expenses Debits — Profit and Loss
?????? 8. Exam Tips
Always remember: Assets = Owner’s Equity + Liabilities.
Classify every account correctly as asset, liability, equity,
income, or expense.
Owner’s Equity changes through capital, drawings, and
profit/loss.
Profit = Income Expenses.
−
VAT input = asset (from SARS). VAT output = liability (to SARS).
Only assets retain value; expenses lose value when consumed.
?????? Basic Bookkeeping and VAT – Pages 11–15 Summary
?????? Integration Task 1.2 — The Importance of Separating Current
and Non-Current Items
Businesses separate assets and liabilities into current and non-
current categories to make financial statements more meaningful.

16. Company
A
Company
B
Non-current assetsR 5 millionR 4 million
Current assets R 3 millionR 4 million
Total assets R 8 millionR 8 million
Owner’s equity R 1 millionR 1 million
Non-current
liabilities
R 4 millionR 3 million
Current liabilitiesR 3 millionR 4 million
?????? Investors compare these to judge liquidity (short-term strength)
and solvency (long-term strength).
Company B is stronger in long-term stability (lower long-term debt),
whereas Company A has higher long-term borrowings.
?????? Learning Example 1 B — Applying the Accounting Equation
Owner’s equity (closing balance) = Assets – Liabilities
→ R 726 000 – R 462 000 = R 264 000
Net profit = Total Income – Total Expenses
→ R 1 045 500 – R 911 500 = R 134 000
Owner’s equity = Capital + Net profit – Drawings
→ R 250 000 + R 134 000 – R 120 000 = R 264 000
✅ Both methods produce the same owner’s equity figure, proving the
accounting equation remains balanced.
?????? Practice Exercise 1 C — Classification & Calculation
Given a list of ledger balances, you must:
1.Identify current assets (e.g. inventory, debtors, bank, cash).

17. 2.Identify non-current assets (e.g. land & buildings, vehicles,
machinery).
3.Identify current liabilities (creditors, bank overdraft, short-term
loans).
4.Identify non-current liabilities (long-term loans, mortgage).
5.Compute net profit (income – expenses).
6.Calculate owner’s equity by both methods above.
?????? Tip: This exercise tests your ability to classify correctly and confirm
that the accounting equation balances.
⚖️ The Rules of Double Entry (Luca Pacioli’s System)
Originated in 13th-century Italy, formalized by Luca Pacioli in
1494.
Every transaction has two sides:
oSource of funds (Liabilities, Income, Capital)
oApplication of funds (Assets, Expenses, Drawings)
Modern adaptation:
Application Source
Purchase of
assets
Capital contribution / external
loan
Running
expenses
Income from sales/services
Drawings by
owner
Business profits or funds
Rule:
For every debit recorded, there must be an equal and opposite
credit.

18. ?????? Double-Entry Rules in the Books of Account
Account Type
Increase
(+ )
Decrease
(– )
Normal
Balance
Assets Debit Credit Debit
Liabilities Credit Debit Credit
Owner’s CapitalCredit Debit Credit
Owner’s
Drawings
Debit Credit Debit
Income Credit Debit Credit
Expenses Debit Credit Debit
?????? Assets, expenses, and drawings → debit nature.
Liabilities, income, and capital → credit nature.
?????? Integration Task 1.3 — Applying Double Entry
You must practice translating real-life transactions (cash sales, credit
sales, purchases, payments) into T-accounts.
Record both sides of each entry.
Always confirm that total debits = total credits.
?????? The Trial Balance
Prepared after posting from the journals to the General Ledger.
Lists all ledger account balances to test that debits = credits.
Ensures the rules of double-entry were applied correctly.
Used as a foundation for producing financial statements.

19. The bookkeeping cycle is only complete once the trial balance
and bank reconciliation are done.
✅ Quick-Revision Highlights
Concept Key Point
Accounting EquationAssets = Owner’s Equity + Liabilities
Current vs Non-
current
12 months = current; > 12 months = non-
≤
current
Owner’s Equity
Formula
Capital + Profit – Drawings
Double Entry
Principle
Every debit must have an equal credit
Debit Nature Assets, Expenses, Drawings
Credit Nature Liabilities, Income, Capital
Trial Balance PurposeChecks that total debits = total credits
?????? Basic Bookkeeping and VAT — Pages 16–19 Summary
?????? Integration Task 1.4 – Trial Balance Accuracy
“If the trial balance balances, one can assume that the bookkeeper has
completed all entries correctly and accurately.”
❌ False.
Balancing the trial balance only proves that total debits = total
credits, not that entries are correct.
There may still be:
Errors of omission (transaction not recorded)

20. Errors of commission (posted to wrong account)
Errors of principle (posted to wrong type of account)
Compensating errors (two errors cancel each other out)
✅ The trial balance is a check of arithmetical accuracy, not
correctness.
?????? The Monthly Cycle of a Business
1.Record transactions from source documents into subsidiary
journals (Cashbook, Petty Cash, Debtors, Creditors, etc.).
2.Post totals from journals to the General Ledger.
3.Reconcile the bank statement, creditors, and debtors ledgers.
4.Prepare the Trial Balance.
5.Use the trial balance to prepare monthly financial reports.
?????? This is called the monthly bookkeeping cycle.
?????? The Yearly Cycle of a Business
At the end of the financial year, the business:
Prepares a Statement of Profit or Loss to determine net profit.
Prepares a Statement of Financial Position (Balance Sheet)
showing assets, liabilities, and owner’s equity.
Closes nominal (income and expense) accounts to the profit or
loss account.
These represent the year-end accounting cycle.
?????? Practice Exercise 1D — Bookkeeping and Accounting Cycle

21. Task: Draw a diagram showing the flow of accounting information:
Typical Cycle Diagram:
Source Documents
↓
Subsidiary Journals
↓
General Ledger
↓
Trial Balance
↓
Financial Statements (Profit or Loss & Balance Sheet)
This shows how data flows from original documents to final reports.
?????? Self-Assessment Activity — Trial Balance
You are given a Trial Balance of Ungerer Products at 31 January 20.8.
It includes both:
Balance Sheet accounts (Assets, Liabilities, Owner’s Equity)
Nominal accounts (Income and Expenses)
Required Calculations:
1.Total Current Assets
2.Total Non-current Assets
3.Total Current Liabilities
4.Total Non-current Liabilities
5.Net Profit or Loss for the year
6.Owner’s Equity (by both methods):
oAssets – Liabilities
oCapital + Profit – Drawings

22. ✅ The purpose is to test classification skills and application of the
Accounting Equation.
?????? Progress Report Summary
By the end of this learning module, you should be able to:
Record business transactions up to Trial Balance stage.
Understand VAT and Income Tax at a basic level.
Perform payroll processing and complete SARS monthly
returns (EMP201, VAT201).
Operate confidently as a junior bookkeeper handling statutory
obligations.
?????? The Theory of VAT (Start of Next Section)
?????? What is VAT?
VAT (Value Added Tax) is an indirect tax charged by vendors on the
supply of goods and services in South Africa.
Vendors collect VAT on behalf of SARS.
The standard VAT rate is 15% (since 1 April 2018).
For specific goods/services, 0% (zero-rated) applies (e.g.,
exports, basic food items).
Some supplies are VAT-exempt (e.g., financial services,
educational fees).
?????? VAT in the Accounting System

23. Term Meaning
Output VAT
VAT charged by the vendor on sales to
customers.
Input VAT
VAT paid by the vendor on purchases (goods or
services bought).
VAT
Payable/Receivable
SARS account showing the difference: Output
VAT – Input VAT.
If Output VAT > Input VAT → pay SARS.
If Input VAT > Output VAT → SARS owes refund.
?????? Example:
Farmer sells pineapple pieces (registered for VAT) → includes VAT
in selling price.
Supermarket buys from farmer: the VAT on this purchase is
Input VAT for the supermarket.
Supermarket sells to consumers → charges Output VAT.
The supermarket’s VAT payable = Output VAT – Input VAT.
?????? VAT Registration (Compulsory or Voluntary)
A business must register for VAT if:
Its taxable supplies exceed R1 million in any 12-month period,
or
It is expected to exceed R1 million in the next 12 months.
Voluntary registration is allowed if taxable supplies are more than R50
000 per year.

24. ?????? VAT Supply Categories
Category VAT Rate Examples
Standard-rated
supplies
15% Most goods & services
Zero-rated
supplies
0%
Exports, basic food items, fuel levy
goods
Exempt supplies
0% (no claimable
input)
Educational services, financial
services, residential rent
Only standard-rated and zero-rated goods qualify for claiming Input
VAT.
Exempt supplies do not qualify for input tax deduction.
?????? Exam Focus Points
Be able to explain Output VAT vs Input VAT.
Know registration thresholds and rates.
Understand zero-rated vs exempt supplies.
Show how VAT affects the accounting equation (Input VAT →
Asset; Output VAT → Liability).
Be able to complete or interpret a VAT201 return (covered later
in the module).
?????? Basic Bookkeeping and VAT — Pages 20–23 Summary
?????? 1. Standard-Rated Supplies (15%)

25. These are goods and services charged at the standard VAT rate of
15%.
To claim input VAT on purchases, a vendor must ask:
1.❓ Was the supplier registered for VAT, and was a valid tax
invoice received?
oIf no, you cannot claim input VAT.
2.❓ Is the item zero-rated, exempt, or non-allowable?
oOnly standard-rated purchases allow VAT input claims.
3.❓ Is it an essential business input?
oSARS allows VAT input on expenses essential to earning
taxable income (e.g. water, electricity, rent, office supplies).
oVAT on luxuries (like entertainment or gifts) is generally not
claimable.
4.❓ Is the item exempt by definition?
oExempt = no VAT charged, no VAT claim allowed.
5.❓ Is there potential VAT misuse?
oSARS may disallow VAT claims on items that could be used
personally rather than for business.
✅ Rule:
Claim input VAT only on valid tax invoices for business-related,
standard-rated purchases.
?????? 2. Zero-Rated Supplies (0%)
These supplies are taxed at 0% VAT. Vendors still charge VAT (at 0%),
but may claim input VAT on their expenses.
Purpose:
To keep basic living costs low.
To support exports and welfare-related goods.

26. Examples:
Petrol, diesel, illuminating paraffin.
Basic foodstuffs (brown bread, milk, fruit, vegetables, samp, etc.).
White bread flour, cake flour, sanitary pads (since 1 April 2019).
Exports (where the vendor bears delivery costs).
Sale of a business as a going concern.
Services rendered by a welfare organisation.
⚖️ 3. Exempt Supplies (0% but Non-Claimable)
Exempt goods/services have no VAT charged, but the vendor cannot
claim input VAT either.
Key Difference:
Zero-
Rated
Exempt
VAT charged? 0% None
Input VAT claimable?✅ Yes❌ No
Vendor registers for
VAT?
Usually yes
Often
no
Examples of Exempt Supplies:
Life assurance
Interest received/paid
Residential rental income
Passenger transport by bus, taxi, or train (not air travel)
Donated goods/services from non-profits (e.g. church bazaars)
?????? Practice Exercise (1e)

27. Question:
If no input VAT can be claimed on both exempt and zero-rated goods,
why distinguish between them?
Answer:
Because zero-rated suppliers can still register for VAT and claim
input VAT, while exempt suppliers cannot. This distinction affects
reporting and tax recovery.
?????? 4. Non-Allowable Items for VAT Input
Even though VAT was charged, SARS disallows claims on certain goods
or services because they’re not directly related to producing taxable
income.
Examples:
Entertainment expenditure: Staff refreshments, client lunches,
staff parties.
o❌ Not claimable unless travel-related (e.g. hotel stay for
business trip = ✅ allowable).
Passenger vehicles: Sedan cars not claimable unless the vehicle
is essential to the business (e.g. driving school, taxi service).
Club fees/subscriptions: ❌ Not claimable, except for
professional memberships required by law (e.g. CA(SA) or
medical board).
?????? 5. Practice Exercise Summary (VAT Theory Review)
Covers questions like:
1.When must a business register for VAT?

28. 2.When are VAT returns due? (Usually bi-monthly, by the 25th or
last day of the following month).
3.Penalties for late returns.
4.Difference between invoice basis and cash basis accounting for
VAT.
5.Meaning of standard, zero-rated, and exempt supplies.
6.What are deemed supplies? (VAT charged when goods are used
privately or transferred).
7.Requirements of a valid tax invoice (supplier details, VAT
numbers, amounts, etc.).
8.Formula differences between debit note and credit note VAT
treatment.
9.Criteria for claiming input VAT (valid invoice, business use,
standard-rated).
?????? Integration Task 1.5 – VAT vs General Sales Tax (Pre-1991)
“VAT has been a more effective tax collection system than General
Sales Tax.”
Reasons VAT is more effective:
Collected at each stage of production and sale (reducing tax
evasion).
Ensures transparency via tax invoices.
Easier to trace and audit.
Promotes compliance since vendors claim input VAT only when
output VAT is declared.
Disadvantages for small businesses:
Increased admin and recordkeeping burden.
Cash flow strain (waiting for SARS refunds).
Requires strong bookkeeping skills.

29. ?????? 6. VAT Calculations
When VAT applies (15%), three figures are important:
Type Formula
Example (R100
excl. VAT)
VAT Inclusive Exclusive × 1.15 100 × 1.15 = R115
VAT Exclusive Inclusive ÷ 1.15 115 ÷ 1.15 = R100
VAT Amount
(Method 1)
Inclusive – Exclusive 115 – 100 = R15
VAT Amount
(Method 2)
Exclusive × 15/100 OR Inclusive
× 15/115
100 × 15/100 = R15
✅ Exam Tips (Pages 20–23)
Always identify whether an item is standard-rated, zero-rated,
exempt, or non-allowable.
You can only claim input VAT on business-related, standard-
rated purchases with a valid tax invoice.
Zero-rated goods → charge 0% VAT but may claim input.
Exempt goods → charge no VAT and cannot claim input.
Learn the VAT formulas by heart:
oInclusive = Exclusive × 1.15
oExclusive = Inclusive ÷ 1.15
oVAT = Exclusive × 15/100 or Inclusive × 15/115.
Know VAT registration thresholds and filing deadlines.
?????? Basic Bookkeeping and VAT – VAT Calculations & Returns (Pages
24–29)

30. ?????? Learning Example 1C – VAT Calculation Methods
There are three ways VAT can be presented in a transaction:
Exclusive price (before VAT)
Inclusive price (after VAT)
VAT amount (the tax itself)
?????? Illustration 1 — When Exclusive Price Is Known
You can calculate VAT and the inclusive price in two ways:
Method 1:
Calculate VAT first, then add it to the exclusive price.
Formula:
VAT = Exclusive × 15%
Inclusive = Exclusive + VAT
Example:
R50 × 15% = R7.50 → R57.50
R300 × 15% = R45.00 → R345.00
Method 2:
Calculate the inclusive price directly.
Inclusive = Exclusive × 1.15
VAT = Inclusive – Exclusive

31. ?????? Illustration 2 — When Inclusive Price Is Known
Again, two methods apply:
Method 1:
Find VAT using the 15/115 rule.
VAT = Inclusive × 15/115
Exclusive = Inclusive – VAT
Example:
R57.50 × 15/115 = R7.50 → R50.00
Method 2:
Calculate Exclusive directly.
Exclusive = Inclusive ÷ 1.15
VAT = Inclusive – Exclusive
Example:
R57.50 ÷ 1.15 = R50.00 → VAT = R7.50
?????? Illustration 3 — When VAT Amount Is Known
Method 1:
Exclusive = VAT × 100/15
Inclusive = Exclusive + VAT
Method 2:

32. Inclusive = VAT × 115/15
Exclusive = Inclusive – VAT
Example:
VAT = R7.50 → Exclusive = R50.00 → Inclusive = R57.50
?????? Summary Table of Key VAT Formulas
Calculation Type Formula
VAT Inclusive Exclusive × 1.15
VAT Exclusive Inclusive ÷ 1.15
VAT Amount (Method
1)
Exclusive × 15/100
VAT Amount (Method
2)
Inclusive × 15/115
?????? Always check whether values are inclusive or exclusive in questions
— the correct formula depends on that.
?????? Practice Exercise 1g – VAT Table Completion
You must complete missing exclusive, VAT, or inclusive amounts
using the formulas above.
This builds fluency for calculating VAT under exam pressure.
?????? Practice Exercise 1h – Jerigo Enterprises VAT Example
This exercise demonstrates a VAT201-style scenario — calculating VAT
due to SARS or refundable from SARS.

33. Given data:
Standard-rated sales: R402 500
Zero-rated sales: R50 000
Exempt sales: R100 000
Input on capital goods: R42 000 (with notes for adjustments)
Input on non-capital goods: R45 500
Second-hand goods purchased: R12 650
Credit notes issued: R13 800
Credit notes received: R6 900
Credit losses written off: R7 130
SARS allows apportionment of input tax when goods are used for
both taxable and exempt supplies.
In this case, 80% of input tax is claimable.
Formula for VAT Due/Refundable:
Output VAT (sales) Input VAT (purchases) = VAT Payable/Receivable
−
Adjust for:
Disallowed input VAT (entertainment, memberships)
Credit notes issued/received
Bad debts written off (VAT adjustment allowed if debt previously
included in output VAT)
?????? Self-Assessment Example – Roger Reddy
Roger Reddy (a registered VAT vendor) records transactions for Oct–
Nov 20.8.
You must identify:
Which transactions qualify for Input VAT or Output VAT, and

34. Which are non-allowable (e.g., entertainment, passenger
vehicles).
Example:
Purchases of merchandise → ✅ Input VAT claimable
Entertainment expenses → ❌ Not claimable
Vehicle purchases (delivery van) → ✅ Claimable
Passenger car purchase → ❌ Not claimable
Motor licence, wages → ❌ Not subject to VAT
Also includes bank statement items (interest, bank charges,
insurance, cash sales) to test VAT classification.
?????? Practice Exercise – 15 VAT Statements
This test consolidates all VAT theory knowledge.
You must mark each statement as True or False, e.g.:
No.
Stateme
nt
True/False
Note
s
(i) VAT is levied at 15% and 0%✅ Correct
(ii) Vendor pays VAT or gets refund
= Output – Input
✅ True
(iii) VAT ignores capital vs revenue✅
VAT applies to
both
(iv) Must register if taxable
supplies > R1 000 000/year
✅
Compulsory
registration
(v) Passenger vehicle VAT claims
denied
✅
Except special
business use
(vi) Input VAT denied on
entertainment
✅ Always disallowed
(vii) Employer pays VAT on fringe ✅ True for certain

35. No.
Stateme
nt
True/False
Note
s
benefits taxable perks
(viii) VAT period = 2 months for
most vendors
✅ True
(ix) Input VAT allowed on second-
hand goods (if paid to non-vendor)
✅
True if conditions
met
(x) Deemed output VAT applies to
insurance payouts
✅ True
(xi) Late VAT payment penalty =
10%
✅ True
(xiv) VAT not claimable on delivery
van
❌
Claimable
(business use)
(xv) Immovable property between
vendors = transfer duty-free
✅
Subject to VAT
instead of duty
?????? VAT Returns (Intro to VAT201)
To claim Input VAT, the vendor must have:
A valid tax invoice for purchases over R50.
Invoices from registered VAT vendors only.
Proper documentation for credit notes and debit notes (used
when tax invoices are corrected or adjusted).
Each VAT period’s totals are reported on the VAT201 return, showing:
1.Output VAT collected from sales
2.Input VAT paid on purchases
3.VAT payable or refundable balance
✅ Exam Tips (Pages 24–29)

36. 1.Memorize VAT formulas (inclusive, exclusive, and VAT amount).
2.Practice classification of transactions — standard, zero-rated,
exempt, or non-allowable.
3.Always check for valid tax invoices — no valid invoice = no VAT
claim.
4.Understand how credit notes, bad debts, and fringe benefits
affect VAT.
5.Know SARS due dates:
oVAT returns due by the 25th (manual) or last day of the
month (eFiling).
oPenalty = 10% on late payments.
6.Understand apportionment: when expenses are partly taxable,
claim only the taxable portion of input VAT.
7.Be prepared to calculate VAT due/refundable from combined
input/output data.
South African VAT (2025) – Study Guide
This guide covers key VAT concepts (as per SARS VAT201 and VAT404
guidance) and practice problems (aligned with ICB/EDGE examples) for
the Financial Accounting module. It is organized into clear sections
with concise explanations, tables, formulas, and step-by-step
examples. All numeric examples use the current VAT rate (15.5% from
1 May 2025) and South African terminology (vendors, input/output tax,
etc.). Sources are cited throughout for reference.
VAT Calculation Methods
VAT-exclusive pricing: To find a VAT-inclusive price from a VAT-
exclusive amount, multiply by 1.155 (15.5% VAT) or add 15.5%.
Example: R100 × 1.155 = R115.50 (VAT-inclusive).
VAT-inclusive pricing: To extract VAT from a VAT-inclusive total,
multiply by VAT fraction = 15.5/115.5 (or previous 15/115 before

37. May 2025). Example: R1150 × (15/115) = R150
VATcustomsregistration.co.za. In 2025, use 15.5/115.5.
VAT-only amount: Difference between inclusive and exclusive
values, or (exclusive × VAT rate). E.g. R1150 – R1000 = R150 VAT.
In formula form: VAT = Price_incl × (15.5/115.5).
These calculations are illustrated in example problems below.
VAT Source Documents
SARS prescribes what must appear on VAT source documents:
Tax Invoice (sales invoice) – Mandatory for supplies >R5,000
(full invoice) or abridged if R50–R5,000. Must include (among
other items)sars.gov.za:
oThe words “Tax Invoice” or “VAT Invoice”
oSupplier’s name, address and VAT registration number
oCustomer’s name, address and VAT number (if a vendor)
oInvoice serial number and issue date
oDescription of goods/services (and quantity/volume)
oValue of supply, amount of VAT, and total consideration
(value + tax).
Credit Note – Issued by the supplier to correct an earlier invoice
(e.g. goods returned or overcharge). Must clearly state “Credit
Note” and includeaccountingweekly.com: supplier’s
name/address/VAT, recipient’s name/address, original invoice
number, date, reason, and the adjusted VAT and new amounts.
Debit Note – Issued to increase an earlier invoice (e.g.
undercharge). It must state “Debit Note” and contain the same
basic information as a credit noteaccountingweekly.com.
Maintaining proper invoices/notes is essential: without a compliant tax
invoice, input VAT cannot be claimedsars.gov.za accountingweekly.com .
VAT Tax Periods & Vendor Categories

38. SARS assigns each VAT vendor a “tax period” category which
determines how often VAT201 returns are filedsars.gov.za sars.gov.za :
Categor
y
Filing Period Typical Criteria
A
Every 2 months
(Jan, Mar, May, Jul,
Sept, Nov)
Assigned by SARS; generally smaller
vendorssars.gov.za.
B
Every 2 months
(Feb, Apr, Jun, Aug,
Oct, Dec)
Assigned by SARS; generally smaller
vendorssars.gov.za.
C
Every 1 month
(monthly)
For vendors with turnover likely >R30m
in 12 months, or if SARS
requiressars.gov.za.
D
Every 6 months
(Feb & Aug, or as
approved)
Typically small farmers (<R1.5m supplies)
or micro businessessars.gov.za.
E
Every 12 months
(end of tax year)
Certain companies/trusts (e.g.
rental/property businesses) meeting
special criteriasars.gov.za.
Vendors can request a different category if they qualify (see SARS
VAT404 Guide). All vendors must submit a return and pay VAT by their
due date (see next section).
Invoice Basis vs Payment Basis of Accounting
Vendors normally use the invoice basis: output VAT is due when a
taxable supply is made (invoice issued), and input VAT is claimed when
goods/services are received and invoiced. However, small vendors may
apply to use the payment basis, in which VAT is accounted only when
payment is actually received or
madecustomsregistration.co.za customsregistration.co.za . Key points:

39. Invoice basis: VAT charged on the date of supply (usually invoice
date). All vendors begin on this basis by default.
Payment basis: Optional for certain vendors (must apply to
SARS). Allows deferring VAT to cash flow. Qualification (per SARS
VAT404)customsregistration.co.za:
oNatural persons (or partnerships of individuals) with total
taxable supplies R2.5
≤
 million in the past 12 months (and
not likely to exceed that in the next year).
oCertain public bodies, welfare organizations, or foreign e-
services suppliers (regardless of turnover).
Example: A sole proprietor (with <R2.5m turnover) issues an
invoice for R1000 (excl. VAT). On the invoice basis they must pay
VAT (R150) in the period of issue, even if not yet paid. On the
payment basis they only declare VAT after the customer pays. In
all cases the vendor must still issue a valid invoice within 21
dayscustomsregistration.co.za.
Feature Invoice Basis Payment Basis
VAT on
Sales
Due at invoice (supply) date
Due when
payment
received
VAT on
Purchases
Deductible at receipt date
Deductible
when payment
made
Qualifying
Vendors
All registered VAT vendors
Small vendors
(see conditions)
Applicatio
n
Default basis
Apply to SARS
(written
request)
Example
Issue R11,500 invoice (R10,000 + R1,500
VAT) → pay R1,500 VAT
immediatelycustomsregistration.co.za
Issue R11,500
invoice but only
pay VAT after
customer pays

40. VAT201 Return Layout & Rules
The VAT201 is the official return form. It has fields for calculating
output tax, input tax, and the VAT due/refund. Key fields (figure
references are SARS numbering):
Fields 1–3: Total value of supplies in each category (standard-
rated, zero-rated, exempt).
Fields 4 & 4A: Output tax on standard-rated supplies. In practice
Field 4 = Field 1 × (15/115), and Field 4A = Field 1A ×
(15/115)customsregistration.co.za. These can auto-calc in eFiling.
Fields 5–9: Special categories (e.g. long-term accommodation,
other goods). For example, Field 6 automatically = Field 5 × 60%
(VAT on long-term accommodation). Field 9 = (Field 8 total
accommodation) × 15%.
Fields 10–12 (Adjustments): VAT adjustments (e.g. Field 11 = VAT
on change in use/exports of second-hand goods = Field 10 ×
(15/115)). Field 12 is “Other & imported services” (VAT on debit
notes, VAT on imported services for non-taxable use, etc.).
Field 13: Total Output Tax = sum of all output/VAT fields (Fields 4,
4A, 9, 11, 12)sars.gov.za. It’s auto-calculated on the VAT201.
Fields 14–18 (Input tax): Allowed input tax on acquisitions. For
example, Field 14 = VAT on capital goods purchased (per
invoices), Field 15 = VAT on other local purchases, Field 16 = VAT
due on change in use, Field 17 = VAT on bad debts (invoice basis
only), Field 18 = “Other” (credit notes issued, etc.).
Field 19: Total Input Tax = sum of Fields 14–18sars.gov.za (auto-
calculated).
Field 20: VAT Payable/Refundable = Field 13 – Field 19. If this
difference is negative, a minus sign is entered to indicate a
refund due; if positive, the amount is VAT duesars.gov.za.
Example (VAT201 snippet): If Field 13 (output) = R18,000 and Field 19
(input) = R13,500, then Field 20 = R4,500 payablesars.gov.za.

41. Conversely, if input exceeds output, the result is a refund (minus sign).
Note: Diesel refund fields (21–25) also appear on VAT201 when
applicable (for primary producers).
Penalties, Interest & VAT Compliance
Late submission of VAT returns: SARS imposes fixed
administrative penalties for late or non-submission of returns.
These can range from a few hundred to thousands of rand per
month (continuing up to 35 months)sars.gov.za. An objected or
corrected submission can stop further penalties. Always file by
due date to avoid admin penalties.
Late payment of VAT: If VAT is not paid on time, SARS levies a
10% penalty on the outstanding VATsars.gov.za. In addition,
interest is charged on the overdue amount at the prescribed
official rate (daily). Example: If R10,000 VAT is unpaid by its due
date, a R1,000 (10%) penalty is added, plus interest from the next
month.
Understatement penalties: If a VAT shortfall is discovered (e.g.
on audit), SARS may impose an understatement penalty based
on taxpayer behavior (50%, 100% or even 200% of the tax
shortfall in egregious cases). These penalties are governed by
Chapter 16 of the Tax Admin Act and take into account whether
the error was negligent or intentionalpwc.co.za. (In practice,
always keep clear records to avoid mistakes.)
VAT evasion and fraud: Deliberately evading VAT (fraudulent
non-payment, fictitious invoices, etc.) is a criminal offense. SARS
can pursue criminal prosecution and jail time for VAT
fraudpwc.co.za. By contrast, legitimate VAT avoidance (using tax
reliefs or planning within the law) is permitted but often closely
scrutinized. In any case, reporting incorrect VAT is risky. SARS
encourages voluntary disclosure of mistakes to mitigate
penaltiessars.gov.za.

42. Submission Rules & eFiling Deadlines
Return due dates: VAT returns (VAT201) are due by the 25th of
the month following the tax period for manual filers; eFiling
vendors have until the last business day of that
monthsars.gov.za. For example, a February return is due by 25
March (manual) or 31 March (eFiling).
eFiling requirement: All Category C (monthly) vendors must
submit returns and payments electronicallysars.gov.za. Manual
submission (paper) is only for approved exceptions.
VAT Payment Reference: Use the pre-populated Payment
Reference Number (PRN) on the VAT201. Funds must clear in
SARS’s account by the due date (otherwise late-payment penalty
applies).
Extension: If needed, a vendor can request an extension on SARS
eFiling before the due date. Absent that, late submission leads to
admin penalties.
Practice Questions & Worked Solutions
1. VAT Calculation (Exclusive ↔ Inclusive)
Question: Kumari Dealers sells furniture to Letsema Furnishers for
R11,500 (VAT-inclusive). Calculate the VAT and net amount.
Solution: The formula for VAT-inclusive to VAT-only is R11,500 ×
(15/115) = R1,500 VATcustomsregistration.co.za. (Using 15% for
simplicity; with 15.5% use 15.5/115.5). The net (VAT-exclusive) price is
R11,500 – R1,500 = R10,000.
Journal (Kumari as seller):
Dr Debtors (Letsema) 11,500
Cr Sales (net) 10,000
Cr VAT Output 1,500

43. This shows R10,000 in revenue and R1,500 remitted as VAT to SARS.
2. VAT Payable from Totals of Inputs/Outputs
Question: During March, Kumari Dealers (invoice basis) had total sales
(incl. VAT) of R115,000 and total purchases (incl. VAT) of R46,000. Compute
VAT payable.
Solution: Output tax = R115,000 × (15/115) = R15,000. Input tax =
R46,000 × (15/115) = R6,000. VAT payable = Output – Input = R15,000 –
R6,000 = R9,000 (due to SARS).
3. VAT on Trade Discount vs Settlement Discount
Scenario A (Trade Discount): Kumari lists a product at R10,000. A 10%
trade discount is applied (invoice price R9,000), then VAT at 15% is
charged.
Trade discount reduces the taxable base. Net = R9,000; VAT =
9,000×0.15 = R1,350; Total = R10,350.
Scenario B (Settlement Discount): Kumari issues Letsema an invoice
for R10,000 + R1,500 VAT = R11,500. Letsema pays early and receives a
5% settlement discount on the total invoice. Calculate VAT adjustment.
Discount = 5% of R11,500 = R575.
Break down R575 into VAT and net: Net portion = 575 × (100/115)
= R500; VAT portion = R575 – R500 = R75.
Adjustment: Vendor must reduce output VAT by R75.
Journal (vendor, after payment):
oDr Sales 500; Dr VAT Output 75; Cr Debtors 575.
(Debtors were originally credited R11,500. Now reduced by
R575.)
This shows that settlement discounts include VAT and must be allocated
between net and VAT. (Trade discounts, given before invoicing, simply
reduce the original VAT base.)

44. 4. Journal Entries for Settlement Discount
(Continued from above)
Original Sale (without discount): Dr Debtors 11,500; Cr Sales
10,000; Cr VAT Output 1,500.
Settlement Discount Granted (5%): Dr Sales 500; Dr VAT Output
75; Cr Debtors 575.
Settlement Discount Received (buyer’s books): Dr Creditors
575; Cr Purchases 500; Cr VAT Input 75.
After the journal entries, vendor’s net sales and VAT are correctly
lowered, and the buyer’s net purchases and input VAT reflect the
discount.
5. VAT201 Completion Example
Question: Kumari Dealers (Category C, invoice basis) for April 2025 has:
Standard-rated sales R100,000 (exclusive of VAT), capital goods sold
R20,000 (excl.), and zero-rated sales R10,000. Purchases: capital assets
R50,000 (excl.), other goods R40,000 (excl.). All figures exclude VAT.
Complete the VAT201 fields and find VAT due.
Solution: First compute VAT on each figure:
Standard sales R100,000 → Output VAT = 100,000×0.155 =
R15,500.
Capital goods sold R20,000 → VAT = 20,000×0.155 = R3,100.
Total Output VAT (Field 13) = R15,500 + R3,100 = R18,600.
Capital purchases R50,000 → Input VAT = 50,000×0.155 = R7,750.
Other purchases R40,000 → Input VAT = 40,000×0.155 = R6,200.
Total Input VAT (Field 19) = R7,750 + R6,200 = R13,950.
VAT Payable (Field 20) = Total Output – Total Input = R18,600 –
R13,950 = R4,650 due.
VAT201 snapshot (key fields):

45. Field 4 (VAT on standard sales) = R15,500.
Field 4A (VAT on capital sales) = R3,100.
Field 13 (Total Output Tax) = R18,600.
Field 14 (VAT on capital purchases) = R7,750.
Field 15 (VAT on other purchases) = R6,200.
Field 19 (Total Input Tax) = R13,950.
Field 20 (VAT Payable) = R4,650.
(If the result had been negative, a “–” sign would be added in Field 20 to
indicate a refund.)
Each field matches the SARS calculations (Field 13 is the sum of output
tax fieldssars.gov.za, Field 19 the sum of input tax fieldssars.gov.za,
and Field 20 the differencesars.gov.za).