POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

STO. TOMAS BRANCH

ACCO 101
Financial Accounting
and Reporting 1
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Accounting Cycle: Merchandising Business
Value Added Tax

Value Added Tax (VAT) is a type of sales tax which is levied on the
consumption on the sale of goods, services or properties, as well as goods
imported in the Philippines. A 12% value added tax rate is levied on goods
and is recorded as a separate account in recording the sale and purchase
transactions. It is an indirect tax that is passed on to the buyer and is added
to the selling price. The amount paid by the customer, known as the invoice
price, will include the selling price and the 12% value added tax.
PUP OUS IODE
Accounting Cycle: Merchandising Business
Value Added Tax

Output VAT refers to the value added tax the seller passed on to the buyer
and is classified as a liability account. Input VAT refers to the value added
tax the buyer paid on the purchase. The excess of output tax over input tax
is the Value added tax due and payable to the Bureau of Internal Revenue
and is to be remitted by the company within 25 days of the following month.
PUP OUS IODE
Accounting Cycle: Merchandising Business
Value Added Tax

The following transactions illustrate the accounting for value added tax using
the periodic system:

Mar 5 AA Business sold merchandise to BB Business for cash, P22,400

VAT inclusive.
AA BB
Cash 22,400 Purchases 20,000
Sales 20,000 Input tax 2,400
Output tax 2,400 Cash 22,400
PUP OUS IODE
Accounting Cycle: Merchandising Business
Value Added Tax

Mar 6 AA Business sold merchandise on account to CC Business, P28,000

VAT inclusive.

AA CC
A/R 28,000 Purchases 25,000
Sales 25,000 Input tax 3,000
Output tax 3,000 A/P 28,000
PUP OUS IODE
Accounting Cycle: Merchandising Business
Value Added Tax

Mar 9 AA Business issued a credit memorandum to CC Business for

defective merchandise returned sold on Mar 6, invoice price P2,800.

AA CC
Sales returns 2,500 AP 2,800
Output tax 300 Input tax 300
A/R 2,800 Purchase returns 2,500
PUP OUS IODE
Accounting Cycle: Merchandising Business
Value Added Tax

Mar 15 AA Business collected amount due from CC Company.

AA CC
Cash 25,200 AP 25,200
A/R 25,200 Cash 25,200