Whenever a good or service is delivered, Value Added Tax (VAT) occurs. VAT is a kind of sales tax. The tax amount is calculated from the revenue (not income as in income tax) by using VAT rates on the delivered product or service. In a sales transaction, the seller receives an amount including both the sales price and VAT. VAT is not included in revenue because the seller collects the value added tax from customers on behalf of the government. On the other hand, the seller also pays VAT to the suppliers while purchasing goods. When the goods and services are delivered, the amount of tax is recorded as VAT received, and in cases of purchases, it is VAT paid account that the amount is recorded in. At the end of each fiscal year, these two accounts on VAT are considered. If VAT received exceeds the VAT paid, this means the seller company has collected more than what it has already paid to government as VAT. Then at year-end, a liability account should be recorded: VAT Payable. Company has to pay this amount to tax office. In opposite case, where VAT paid is more than VAT received, this means that the company has paid more tax. Then, it collected from customers on behalf of government. The excess amount is recorded in an asset account; VAT Deductible. This amount represents a tax receivable from government and is carried forward to the next year in order to be deducted from VAT tax liability.