AAT Level 2 Bookkeeping Practice Test 2026 – Complete Exam Prep

When recording a cash sale that includes VAT, you debit cash for the total amount received and credit the net sales revenue and the VAT payable (VAT Output). Here, the total is 1,200, with VAT at 20%. The net sale is 1,000 (1,200 divided by 1.20), and the VAT portion is 200.

So the correct entry is: Dr Cash/Bank 1,200; Cr Sales 1,000; Cr VAT Output 200.

Why this fits: VAT Output represents the tax you owe to the tax authority from the sale, so it’s a liability. The net sales figure is the actual revenue earned before tax. The other options either omit the VAT, misstate the net amount, or allocate too much or too little to VAT versus cash, which wouldn’t reflect the 20% VAT on the sale.