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, transferee or lessee of the goods, properties or services.

Who shall register: All entities with gross annual sales/receipts of at least
P1,500,000.00.

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 no 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/declarations 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/declarations 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: o Monthly VAT Payable is paid not later than the 20th day following the close o
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: o On Sale of Goods twelve percent (12%) of the gross selling price or gross o 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 VAT-registered 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. value in money of the goods or properties sold, bartered or exchanged

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 Journal Entries Purchases Input Tax Accounts Payable (P10,000 x 0.12 = P1,200) (P10,000 x 1.12 = P11,200) Account Receivable Sales Output Tax (P18,000 x 0.12 = P2,160) (P18,000 x 1.12 = P20,160) Accounts Payable Purchase Returns and Allowances Input Tax (P1,000 x 0.12 = P120) (P1,000 x 1.12 = P1,120) Sales Returns and Allowances Output Tax Accounts Receivable (P1,000 x 0.12 = P120) (P1,000 x 1.12 = P1,120) Accounts Payable Cash Cash Accounts Receivable

10,000.00 1,200.00 11,200.00

2. Sold
merchandise, P18,000, on terms 2/10 n/30, plus a 12% VAT 3. Returned merchandise, P1,000, plus 12% VAT 4. Sales returns, P1,000, plus 12% VAT

20,160.00

18,000.00 2,160.00

1,120.00

1,000.00 120.00

1,000.00 120.00 1,120.00

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

1,500.00 2,000.00 8,580.00

1,500.00 2,000.00 180.00 21.60 8,378.40

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

0.02=

8. Collection of account within discount period

Cash Sales Discount Output Tax Account Receivable (P20,160-1,120-2,000 = P17,040) ((P20,160-1,120) 0.02=P380.80/1.12)=P340) (P340 x 0.12 = P40.80) (P17,040-380.80 = P16,659.20)

16,659.20 340.00 40.80 17,040.00 x

CASE B: VAT inclusive (VAT is already part of the cost of the item purchased/sold.) Transactions Journal Entries Purchases Input Tax Accounts Payable (P10,000/1.12 = P8,928.57) (P8,928.57 x 0.12 = P1,071.43) Account 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) Sales Returns and Allowances Output Tax Accounts Receivable (P1,000/1.12 = P892.86) (P892.86 x 0.12 = P107.14) Accounts Payable Cash Cash Accounts Receivable Accounts Payable Purchase Discount Input Tax Cash (P10,000-1,000-1,500 = P7,500) ((P10,000-1,000) x P180/1.12)=P160.71) (P160.71 x 0.12 = P19.29) (P7,500-180 = P7,320) 7,500.00

1. Purchased
merchandise, P10,000 VATinclusive, on terms 2/10 n/30

8,928.57 1,071.43 10,000.00

2. Sold
merchandise, P18,000 VATinclusive, on terms 2/10 n/30

18,000.00

16,071.43 1,928.57

3. Returned
merchandise, P1,000, VATinclusive

1,000.00

892.86 107.14

4. Sales
returns, P1,000, VAT-inclusive

892.86 107.14 1,000.00

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

1,500.00 2,000.00

1,500.00 2,000.00 160.71 19.29 7,320.00

0.02=

8. Collection of account within discount period

Cash Sales Discount Output Tax Account Receivable (P18,000-1,000-2,000 = P15,000) ((P18,000-1,000) 0.02=P340/1.12)=P303.57) (P303.57 x 0.12 = P36.43) (P15,000-340 = P14660)

14,660.00 303.57 36.43 15,000 x

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 1,999.20 Input Tax 1,058.40 VAT Payable 940.80 To close Input Tax and Output Tax (P2,160-120-40.80 = P1,999.20) (P1,200-120-21.60 = P1,058.40) (P1,999.20-1,058.40 = P940.80) VAT Payable Cash Remittance to BIR 940.80

940.80

If the remittance happened at the end of the month, the compound journal entry is as follows: Output Tax 1,999.20 Input Tax 1,058.40 Cash 940.80 Remittance to BIR Assuming Input Tax is P1,999.20 and Output Tax is P1,058.40, the journal entry would be: Output Tax 1,058.40 Creditable Input Tax/ Excess of Input Tax over 940.80 Output Tax Input Tax 1,999.20 To close Input Tax and Output Tax