VALUE ADDED TAX (VAT)

ON MERCHANDISE PURCHASED AND SOLD

Value Added Tax (VAT) is an indirect tax. This means it may be shifted or passed on the buyer,
transferred or lessee of the goods, properties or services.

Who shall register:

P1,500,000.00

All entities with gross annual sales/receipts of at least

Who shall file: For as long as the VAT registration has not been cancelled, the VAT
return/declaration must be filed by the following taxpayers:
o A VAT-registered entity; and
o An entity required to register as a VAT taxpayer but failed to register.
The filing should be done even if (a) there is not taxable transaction during the month or
(b) the aggregate sales/receipts for any 12-month period did not exceed P1,500,000.00.

Where to File: The returns/declaration must be filed with any Authorized Agent Bank
(AAB) within the jurisdiction of the Revenue District Office where the taxpayer is
required to register. In places where there are no AAB, the returns/declaration shall be
filed with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer
located within the revenue district where the taxpayer is required to register.

When to pay:
Monthly VAT payable is paid not later than the 20th day following the close of the
month. To illustrate, VAT for the month of May should be paid on or before June
20.
Quarterly VAT Payable must be paid not later than the 25th day following the
close of the quarter. To illustrate, VAT for the second quarter should be paid on
or before July 25.

Rates and bases of tax:

On Sale of Goods twelve percent (12%) of the gross selling price or gross value
in money of the goods or properties sold, bartered or exchanged.
On Sale of Services twelve percent (12%) of gross receipts derived from the
sale or exchange of services.

Accounts Used:
1. Input Tax means the value-added tax due from/paid by a VAT-registered entity in the
course of his trade or business on purchase of goods or services from another VATregistered entity.
2. Output Tax means the value-added tax due on the sale of taxable goods or services by
any VAT-registered entity.
3. VAT Payable is the account used to record the excess of output tax over allowable
input tax. It is payable to the BIR. It is presented as part of Trade and Other Payables
under the Current Liability section of the Balance Sheet.
4. Creditable Input Tax is the account used to record the excess of input tax over output
tax. It serves as tax credit. It is presented as part of Other Current Assets (after Prepaid
Expenses) under the Current Assets section of the Balance Sheet.
5. Excess of Input Tax over Output Tax may be used in lieu of the account Creditable
Input Tax.

ILLUSTRATIVE JOURNAL ENTRIES (explanations omitted)

CASE A: VAT exclusive (VAT is not yet part of the cost of the item purchased/sold).
Transactions
1. Purchased
merchandise
P10,000, on
terms 2/10
n/30, plus a
12% VAT
2. Sold
merchandise,
P18,000,
on
terms
2/10
n/30, plus a
12% VAT

Journal Entries
Purchases
Input Tax
Accounts Payable
(P10,000 x 0 .12 = P1,200)
(P10,000 x 1.12 = P11,200)

3.

Returned
merchandise,
P1,000, plus
12% VAT

Accounts Payable
Purchase Returns and Allowances
Input Tax
(P1,000 x 0.12 = P120)
P1,000 x 1.12 = P1,120)

1,120.00

Sales returns,
P1,000, plus
12% VAT

Sales Returns and Allowances

Output Tax
Accounts Receivable
(P1,000 x 0.12 = P120)
(P1,000 x 1.12 = P1,120)

1,000.00
120.00

5. Partial
payment of
P1,500
6. Partial
collection of
P2,000
7. Payment of
account within
discount
period

Accounts Payable
Cash

1,500.00

Cash
Accounts Receivable

2,000.00

Accounts Payable
Purchase discount
Input Tax
Cash
(P11,200-1,120-1,500 = P8,580)
P11,200-1,120) x .02 =
P201.60/1.12)=P180
(P180 x 0.12 = P21.60)
(P8,580.00-201.60 = P8,378.40)

8,580.00

8.

Cash

4.

Collection of

Accounts Receivable
Sales
Output Tax
(P18,000 x 0.12 = P2,160)
(P18,000 x 1.12 = P20,160)

10,000.00
1,200.00
11,200.00

20,160.00
18,000.00
2,160.00

1,000.00
120.00

1,120.00

1,500.00

P2,000.00

180.00
21.60
8,378.40

16,659.20

accounting
within
discount
period

Sales Discount
Output Tax
Accounts Receivable
(P20,160-1,120=2000 = P17,040)
(P20,160=1,120) x .
02=P380.80/1.12)=P340)
(P340 x 0.12) = P40.80
P17,040-380.8 x P16,659.20

340.00
40.80
17,040.00

CASE B: VAT inclusive (VAT is already part of the cost of the item purchased/sold.)
Transactions
1. Purchased
merchandise,
P10,000 VATinclusive, on
terms 2/10
n/30
2. Sold
merchandise,
P18,000 VATinclusive, on
terms 2/10
n/30
3. Returned
merchandise,
P1,000, VATinclusive

Journal Entries
Purchases
Input Tax
Accounts Payable
(P10,000/1.12 = P8,928.57)
(P8,928.57 x 0.12) = P1,071.43)

4.

Sales Returns and Allowances

Output Tax
Accounts Receivable
(P1,000/1.12 = P892.86)
(P892.86 x 0.12 = P107.14)

5.

Sales returns,
P1,000, VATinclusive

Partial
payment of
P1,500
6. Partial
collection of
P2,000
7. Payment of
account within
discount
period

Accounts Receivable
Sales
Output Tax
(P18,000/1.12 = P16,071.43)
P16,071.43 x 0.12 = P1,928.57)
Accounts Payable
Purchase Returns and Allowances
Input Tax
(P1,000/1.12 = P892.86)
(P892.86 x 0.12 = P107.14)

8,928.57
1,071.43
10,000.00

18,000.00
16,071.43
1,928.57

1,000.00
892.86
107.14

892.86
107.14
1,000.00

Accounts Payable
Cash

1,500.00

Cash
Accounts Receivable

2,000.00

Accounts Payable
Purchase discount
Input Tax
Cash
(P10,000-1,000-1,500 = P7,500)
(P10,000-1,000) x 0.02 =

7,500.00

1,500.00

2,000.00

160.71
19.29
7,320.00

P180/1.12)=P160.71)
(P160.71 x 0.12 = P19.29)
(P7,500 -180 = P7,320)
8.

Collection of
account within
discount
period

Cash
Sales Discount
Output Tax
Accounts Receivable
(P18,000-1,000-2,000 = P15,000)
(P18,000-1,000) x 0.02 = P340/1.12) =
P303.57
(P303.57 x 0.12 = P36.43)
(P15,000-340 = P14,660)

14,660.00
303.57
36.43
15,000.00

At the end of the month, the balances of Input Tax and Output Tax are compared as follows:
Output tax (VAT on sales)
P xx
Less: Input tax (VAT on purchases)
xx
DIFFERENCE
P xx

If the difference is positive (Output tax > Input tax), then the difference is credited to
VAT payable.
If the difference is negative (Output tax < Input tax), then the difference is debited to
Creditable Input Tax or Excess of Input Tax over output Tax.

To illustrate, based on transactions in CASE A (VAT-exclusive) above, the succeeding journal

entries would be:
Output Tax
Input Tax
VAT Payable
To close Input Tax and output Tax
(P2,160-120-40.80 = P1,999.20)
P1,20-120-21.60 = P1,058.40)
P1,999.20-1,058.40 = P940.80)

VAT Payable
Cash
Remittance to BIR

1,999.20
1,058.40
940.80

940.80

940.80

If the remittance happened at the end of the month, the compound journal entry is as follows
Output Tax
Input Tax
Cash
Remittance to BIR

1,999.20

1,058.40
940.80

Assuming Input Tax is P1,999.20 and Output Tax is P1,058.40, the journal entry would be:

Output Tax
Creditable Input Tax/Excess of Input Tax Over
Output Tax
Cash
To close Input Tax and Output Tax

1,058.40
940.80

1,999.20