Company hosts a client dinner. Local laws state that VAT recovery on entertainment is prohibited. The VAT amount should be recognized as an expense in the current tax period.

Step 1 is to book the Bill for entertainment service purchase.

Input VAT shall be booked to the G/L account Incoming VAT on goods and services set in Accounting settings.

Step 2 VAT amount has to be transferred from the input VAT account. Since the VAT cannot be deducted, it must be recorded as an expense. This is made by the VAT Adjustment document. Adjustment type is set to Incoming VAT, amount entered in the Cr column, as the aim to credit the VAT account.

Important:

In this case it is assumed, that no Tax invoice has been posted for the purchase Bill. A Tax invoice would have transferred the VAT amount to the VAT calculation account, where the VAT amounts are collected until claimed.

If where would have been a Tax invoice posted, the VAT adjustment document would have the Adjustment type VAT calculation and would credit the VAT calculation account.