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: 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:
○ A VAT-registered entity; and
○ 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 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.
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 Journal Entries

1. Purchased Purchases 10,000.00

merchandise
P10,000, on Input Tax 1,200.00
terms 2/10
Accounts Payable 11,200.00
n/30, plus a
12% VAT (P10,000 x 0 .12 = P1,200)

(P10,000 x 1.12 = P11,200)

2. Sold Accounts Receivable 20,160.00

merchandise,
P18,000, on Sales 18,000.00
terms 2/10
Output Tax 2,160.00
n/30, plus a
12% VAT (P18,000 x 0.12 = P2,160)

(P18,000 x 1.12 = P20,160)

3. Returned Accounts Payable 1,120.00

merchandise,
P1,000, plus Purchase Returns and Allowances 1,000.00
12% VAT
Input Tax 120.00

(P1,000 x 0.12 = P120)

P1,000 x 1.12 = P1,120)

4. Sales returns, Sales Returns and Allowances 1,000.00

P1,000, plus
12% VAT Output Tax 120.00

Accounts Receivable 1,120.00

(P1,000 x 0.12 = P120)

(P1,000 x 1.12 = P1,120)

5. Partial Accounts Payable 1,500.00
payment of
P1,500 Cash 1,500.00

6. Partial Cash 2,000.00

collection of
P2,000 Accounts Receivable P2,000.00

7. Payment of Accounts Payable 8,580.00

account within
discount Purchase discount 180.00
period
Input Tax 21.60

Cash 8,378.40

(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. Collection of Cash 16,659.20

accounting
within Sales Discount 340.00
discount
Output Tax 40.80
period
Accounts Receivable 17,040.00

(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

CASE B: VAT inclusive (VAT is already part of the cost of the item purchased/sold.)

Transactions Journal Entries

1. Purchased Purchases 8,928.57
merchandise,
P10,000 VAT- Input Tax 1,071.43
inclusive, on
Accounts Payable 10,000.00
terms 2/10
n/30 (P10,000/1.12 = P8,928.57)

(P8,928.57 x 0.12) = P1,071.43)

2. Sold Accounts Receivable 18,000.00

merchandise,
P18,000 VAT- Sales 16,071.43
inclusive, on
Output Tax 1,928.57
terms 2/10
n/30 (P18,000/1.12 = P16,071.43)

P16,071.43 x 0.12 = P1,928.57)

3. Returned Accounts Payable 1,000.00

merchandise,
P1,000, VAT- Purchase Returns and Allowances 892.86
inclusive
Input Tax 107.14

(P1,000/1.12 = P892.86)

(P892.86 x 0.12 = P107.14)

4. Sales returns, Sales Returns and Allowances 892.86

P1,000, VAT-
inclusive Output Tax 107.14

Accounts Receivable 1,000.00

(P1,000/1.12 = P892.86)

(P892.86 x 0.12 = P107.14)

5. Partial Accounts Payable 1,500.00

payment of
P1,500 Cash 1,500.00

6. Partial Cash 2,000.00

collection of
P2,000
 Accounts Receivable 2,000.00

7. Payment of Accounts Payable 7,500.00

account within
discount Purchase discount 160.71
period
Input Tax 19.29

Cash 7,320.00

(P10,000-1,000-1,500 = P7,500)

(P10,000-1,000) x 0.02 =
P180/1.12)=P160.71)

(P160.71 x 0.12 = P19.29)

(P7,500 -180 = P7,320)

8. Collection of Cash 14,660.00

account within
discount Sales Discount 303.57
period
Output Tax 36.43

Accounts Receivable 15,000.00

(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)

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)

P1,20-120-21.60 = P1,058.40)

P1,999.20-1,058.40 = P940.80)

VAT Payable 940.80

Cash 940.80
Remittance to BIR

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 1,999.20
Cash
To close Input Tax and Output Tax