Excise Duty Accounting treatement

Started by TechShristi, December 22, 2013, 08:24:19 pm

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TechShristi

December 22, 2013, 08:24:19 pm Last Edit: December 22, 2013, 08:49:07 pm by TechShristi
Hello Friends:

In this article we will show you how to make a accounting treatment for the Excise duty and Cenvat Credit for purchase and sale transaction.We pre-assumed that you know the basic meaning of Excise duty and Cenvat Credit and therefore we are directly moving with the Accounting treatment of the same.

Excise Duty:
Central Excise Law is levied on manufacturer or production of goods. The liability of paying the central excise is on the manufacturer. So let us examine the concept and definitions of goods, manufacture and manufacturer in detail.

Cenvat Credit: Cenvat Credit is a scheme where the manufacturers or the output service providers are allowed a set off of the taxes paid on the inputs or the input services that are used while manufacturing the final products or providing the output service.

Accounting treatment for Excise Duty:

1) When a Raw materials is Purchased:
QuotePurchase a/c                      Dr.
Cen-vat Credit Receivable a/c         Dr
            To Creditor/Suppliers a/c    Cr
Logic:

       
  • Purchase account is debited with the amount you actually paid for the Raw Materials that is net amount after deducting excise duty.

  •    
  • Cenvat Receivable account is debited with the amount of excise duty is paid.This because this amount would be return back to you as a cenvat credit.

  •    
  • Suppliers is credit with the total amount.

2)  When Goods are sold:
Quote
Cash a/c        Dr
To Sales a/c   Cr


Logic:

       
  • It is assumed that Sales is made at Cash

  •    
  • Debit with full amount of Cash

  •    
  • Credit with full amount of Cash

3) At Year End Excise Duty is Paid:
QuoteCenvat Credit Receivables  a/c  Dr
To Excise Duty a/c                     Cr


Logic:

       
  • Since we have transfer d  the amount of excise duty paid on raw materials to Receivables account, now we will use that account to pay the excise duty.

  •    
  • So, Receivables account will be first utilized to pay excise duty.

4) Remaining Excise Duty:
QuoteExcise Duty a/c        Dr
To Cash/bank          Cr


Logic:

       
  • Remaining balance of Excise duty is paid through Cash.


ACCOUNTING TREATMENT IN CASE OF CAPITAL GOODS PURCHASED:
1) Accounting treatment for purchased of Capital Goods:
Quote
Machinery a/c     Dr
To Cenvat Credit Receivables a/c   Dr
To Cenvat Credit payable a/c         Dr
To Creditor/Suppliers a/c               Cr.
Logic:

       
  • Machinery Account will be debited with net total amount deducting excise duty payment

  •    
  • 50% of excise duty will be debited to Receivables account

  •    
  • And 50%of excise duty will be debited to payable account

  •    
  • This is because in case of capital goods purchase only 50% payment is made in this year and remaining 50% in next year

2) Excise Duty paid:
Quote
Cenvat Credit Receivables a/c     Dr
To Excise Duty


Logic:

       
  • Being Excise Duty paid out of Cenvat Credit Receivables account amount

3) Transfer Cenvat Credit payable account to Credit Receivables account:
Quote
Cenvat Credit Receivables a/c        Dr.
Cenvat Credit payable a/c              Cr


Logic:

       
  • At the year end, amount payable in next year (Excise duty refund) is transferred to Receivables account

  •    
  • So, payable account will be closed after crediting it and Receivables account will opened for the refund of excise duty.

4) The Entry Number 2 for the payment of Excise Duty will be repeated again for the payment of the excise duty.
Logic:

       
  • Excise duty will be paid in next year from this Cenvat Credit Receivable account.

5) Remaining Excise Duty:
QuoteExcise Duty a/c        Dr
To Cash/bank          Cr


Logic:

       
  • Remaining balance of Excise duty is paid through Cash.


TechShristi

December 22, 2013, 08:24:19 pm Last Edit: December 22, 2013, 08:49:07 pm by TechShristi

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