Value Added Tax ( VAT )

Value Added Tax - is a business tax imposed on persons engaged

in the folowwing activities:
1. sale, barter or exchange of goods;
2. sale of services or lease or use of properties; and
3. importation of goods, whether connected with business or for
personal use.
 Input & Output Value Added Tax
• Input Tax - refers to the value added tax due on or paid by a VAT
registered person on importation of goods or local purchases of goods,
properties or services, including lease or use of properties, in the coures of
his trade or business.
• Output Tax - the value added tax imposed by the seller of domestic goods
or services, or owner of property for lease or use, in the course of his trade
or business.
 Computation of Value Added Tax
• Value Added Tax is 12% based on gross selling price or gross
receipts.
• Gross selling price - means the total amount of money or its
equivalent which the purchaser pays or obligated to pay the
seller in consideration of the sale excluding value added tax.
• Gross receipts - refers to the total amount of money or its
equivalent representing the contract price, service fee, rental or
royalty excluding value added tax.
Accounting Procedures in Handling VAT

The following are the proforma entries relative to transactions involving

value added tax:
1. To record purchases – P1,000,000 (exclusive of cost)
Purchases 1,000,000
Input Tax 120,000 (1M x 12%)
Cash/Accounts Payable 1,120,000
2. To record returned merchandise purchased – P100,000
Cash/Accounts Payable 112,000
Purchase Returns & Allowances 100,000
Input Tax 12,000 (100k x 12%)
3. To record payments within the discount period – 2% discount
Accounts Payable 1,008,000
Purchase Discount 18,000 [(1M-100k) x 2%]
Input Tax 2,160 ( 18,000 x 12%)
Cash 987,840
4. To record sales – P1,500,000 (exclusive of selling price)
Cash/Accounts Receivable 1,680,000
Sales 1,500,000
Output Tax 180,000 (1.5M x 12%)
5. To record merchandise returned by customer – P200,000
Sales Returns & Allowances 200,000
Output Tax 24,000 (200k x 12%)
Cash/Accounts Receivable 224,000
6. To record collections within the discount period – 1% discount
Cash 1,441,440
Sales Discount 13,000 [(1.5M-200k) x 12%]
Output Tax 1,560 (13,000 x 12%)
Accounts Receivable 1,456,000
7. To close input and output tax to VAT payable
Output Tax 154,440
Input Tax 105,840
VAT payable 48,600
8. To record remittance of VAT to BIR
VAT payable 48,600
Cash 48,600