The process of collection of VAT is often safely categorized into two broad heads based on the method of collection of value-added tax.
Account-based collection of VAT:
Under the account-based method of collection, sale receipts aren't used, instead, tax is calculated on the value-added. Value added is calculated because of the difference between revenues and allowable purchases. Most countries don't use this method of computing and collecting VAT; however, Japan still uses this manner for tax collection.
Invoice-based collection of VAT:
Under the invoice VAT collection, sale receipts or invoice is employed to compute the corresponding Vat. Traders, after they sell their goods and services, offer invoice containing separate details of VAT collected. Most countries within the world today use the invoice- based method of VAT collection.
Another way to categorize VAT collection is to classify it supported the timing of collection.
Accrual- based collection of VAT:
Accrual based collection matches the revenue with the fundamental measure during which it's earned and matches the value of raw materials and expenses to the period of time during which they were made. This method is extremely complicated compared to the cash-based collection of VAT. However, it also throws substantial light on information about any business.
Cash-based collection of VAT:
Cash-based accounting is easier than accrual-based calculation. Emphasis is laid on the cash that's being handled rather than whether all the bills are paid. Whenever a payment is received, that date is recorded as the date of receipt of fund.