In a part exchange, which account is credited for VAT?

In a part exchange transaction, the VAT account is credited because this account is used to record the output VAT on sales. When an asset is disposed of in exchange for another asset, it often involves a value-added tax which needs to be recognized. Since part exchange involves selling one asset and trading it in for another, the VAT must be accounted for claiming that the sale of the original asset includes VAT.

The disposal account typically records the sale of the asset and captures the gain or loss on the disposal, but it does not specifically handle the VAT aspect. Therefore, while the disposal account reflects the financial transaction concerning the asset itself, the VAT account specifically tracks the tax implications arising from that transaction. The VAT account ensures compliance with tax regulations by recording the VAT that is due on the sale and is crucial for understanding the net tax liability of the business after the part exchange.