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Accounting for VAT in the Philippines


By: Garry S. Pagaspas
Value Added Tax (VAT) is imposed upon any person who, in the ordinary course of trade
or business, sells, barters, exchanges, leases goods or properties, renders services, and
any person who imports goods. It is an indirect tax and the amount of VAT maybe shifted
or passed on to the buyer, transferee or lessee of the goods, properties or services.The
BIR has mandated underRevenue Regulations No. 18-2011
(http://philtaxation.blogspot.com/2011/12/penalty-for-failure-to-segreggatevat.html)that VAT shall be shown separately on thesales invoice (SI)for transactions
involving goods, or on theofficial receipts (OR)for transactions involving services, and
failure to follow the same is subject to penalties (say, P1,000.00 per SI/OR). This new
mandate makes accounting for VAT a bit easier and fun. I should not say its boring,
because some technical rules would thrill your brain cells. The VAT you pay on purchases
is normally calledinput VAT, while the VAT you add on sales is normally calledoutput
VAT.In computing theVAT due and payableto the Bureau of Internal Revenue (BIR),
you simply compute as follows:
Output tax from sales
Less: Creditable input taxes
Equals: VAT due and payable
The above formula is just a simple subtraction, but with the varying rules on output VAT,
creditable input taxes, and other VAT rules on registration, filing of reports, makes the
VAT system one-of-a-kind tax type for taxpayers.For purposes of accounting for VAT in
the Philippines, you should note the following accounting areas that I wish to share
sample entries. Of course, you can alter or change them to your desired account titles to
fit your style for as long as they are comprehensible enough, because BIR did not
prescribe the use of specific account titles. For better appreciation, I suggest you read
further below with themonthly BIR Form No. 2550M, andquarterly-BIR Form No,
2550Q.
For illustrative purposes, let us assume the following transactions or figures, and to
emphasize VAT journal entries, let us assume no withholding taxes applies, unless so
stated.
Company Seller (VAT-registered) sold Company Buyer(VAT-registered)for P200,000,
exclusive of 12% VAT, or a total of P224,000.00. Company Sellers purchases amounted
to P100,000.00, exclusive of 12% VAT or a total of P112,000.00.
I.Sales of goods or properties
In the monthly or quarterly VAT returns, sales of goods is classified into regular sales,
zero-rated sales, exempt sales, and sales to government. Sample accounting entries are
as follows:
Regular sales and government sales:
Debit: Cash or Account Receivable- P224,000.00
Credit: Sales P200,000.00
Credit: Output VAT P24,000.00
Zero-rated sales or VAT-exempt sales:
Debit: Cash or Account Receivable- P200,000.00
Credit: Sales P200,000.00
Please note that VAT is shown separately through the Output VAT. In regular and
government sales, VAT is added, while in zero-rated and exempt sales, not output VAT is
imposed. The peculiar in government sales is the treatment of input taxes so we will deal
with it later. Same is true with respect to zero-rated and exempt transaction because the
difference lies in the treatment of input taxes.
II. Purchases of goods or properties, and services
Purchase of goods or properties, and services is a reciprocal of sale on the part of the
seller. It could be with VAT for VATable, or without VAT for VAT-exempt or zero-rated
transactions. Hereunder are sample entries.

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JANUARY 2015
January 8-9, 2015 - Basic Business
Accounting and BIR Non-VAT Compliance
(http://taxacctgcenter.org/programs/basicbusiness-accounting-bir-compliance-vat/)
January 13-14, 2015 - Basic Business
Accounting and BIR VAT Compliance
(http://taxacctgcenter.org/programs/basicbusiness-accounting-bir-compliance-vatcorp/)
January 22-23, 2015 - Basic Business
Taxation Simplified
(http://taxacctgcenter.org/programs/basicbusiness-taxation-simplified/)
FEBRUARY 2015
February 5, 2015 - Value Added Tax
Philippines, In and Out Seminar
(http://taxacctgcenter.org/programs/valueadded-tax-in-and-out/)
February 6, 2015 - Returns and Reports
Preparation under eBIR Forms and Online
Submissions
(http://taxacctgcenter.org/programs/taxreturns-reports-preparation-e-bir-formsphilippines/)
February 12, 2015 - Basic Income Taxation
for Sole Proprietors under New ITR
(http://taxacctgcenter.org/programs/basicincome-taxation-for-sole-proprietors-undernew-itr/)
February 13, 2015 - Withholding Taxes,
Subjects & Application
(http://taxacctgcenter.org/programs/withholdingtaxes-subjects-application/)
February 18, 2015 - Basic Income Taxation
for Corporations under New ITR
(http://taxacctgcenter.org/programs/basicincome-taxation-for-corporations-undernew-itr/)
February 26, 2015- BIR Examination: Their
Procedures and Our Defenses
(http://taxacctgcenter.org/programs/birexamination-their-procedures-and-ourdefenses/)
February 27, 2014- PEZA Registered Entities:
Tax Compliance Seminar
(http://taxacctgcenter.org/programs/pezaregistered-philippines-tax-complianceseminar/)
MARCH 2015
March 6, 2015 - Compensation:
Computations and Must Know Exemptions
(http://taxacctgcenter.org/programs/compensationscomputation-and-must-know-exemptions/)

Purchases with 12% VAT:


Debit: Expense or Purchases or Asset account P100,000.00
Debit: InputVAT P12,000.00
Credit:Cash or Accounts payable P112,000.00
Zero-rated sales or VAT-exempt sales:
Debit: Expense or Purchases or Asset account P100,000.00
Credit:Cash or Accounts payable P100,000.00
The onlydifference on the above sample entries lies on the recognition of the input taxes.
For VATable purchases, input VAT is recognized separately because it represents an
asset that has to be accounted for.
III. Setting-up VAT payable or creditable input VAT
For monthly or quarterly filing of VAT returns, you may either have VAT payable or
excess creditable input taxes. For the first two (2) months of the quarter, you use sales,
purchases, and related VAT components for the monthly period only. For the quarterly
return, you aggregate figures for the three (3) months of the quarter. Hereunder are the
related sample entries:
Setting-up VAT payable:
Debit: Output VAT P24,000.00
Credit:Input VAT P12,000.00
Credit: VAT due and payable P12,000.00
Setting-up VAT payable is simply closing the Input VAT and Output VAT accounts to VAT
due and Payable account. The resulting difference would represent the VAT due and
payable. This of course, presumes that the Input VAT are all creditable against output
VAT and is not subject to deferred input VAT rules like on capital goods.
Setting-up Creditable input VAT:
Debit: Output VAT P12,000.0
Debit: Creditable input VAT 12,000.00
Credit:Input VAT P24,000.00
In the above entry, the input VAT is more than the output VAT so the difference is
Creditable input Vat. It is a temporary asset account like input VAT and is used to refer to
prior-period purchases with VAT.

March 13, 2015 - How to analyze Financial


Statements & Accounting for Management
(http://taxacctgcenter.org/programs/how-toanalyze-financial-statements-accounting-formanagement/)

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2014 Annual Income Tax Return
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(http://taxacctgcenter.org/2014-annualincome-tax-return-1702-1701reminders-philippines/)

Setting-up VAT payable applying prior-period creditable Input VAT:


Debit: Output VAT P24,000.00
Credit:Input VAT P12,000.00
Credit: Creditable input VAT Px x x
Credit: VAT due and payable Px x x
IV. Payment of VAT due and payable
Payment of VAT due and payable is the filing of the VAT returns within 2twenty (20) days
from end of month for monthly returns using BIR Form No. 2550M, and within twentyfive (25) days from quarter-end for quarterly returns using BIR Form no. 2550Q.
Filing and Payment of VAT due and payable
Debit: VAT due and payable P12,000.00
Credit: Cash P12,000.00
The above entry is as simple as you pay a normal liability account.
V. Special VAT rules
As I have mentioned above, special VAT rules makes it more challenging to account for
VAT. These rules are mostly applicable on input VAT as to its availability for deduction or
credit against output VAT such as in input VAT on capital goods costing P1M having a
useful life of more than five years, final withholding of VAT on sales to government,
refund of input VAT attributable to zero-rated sales, and expenses, and recording as
expense of input VAT attributable to VAT-exempt sales transactions.
The special rules would be a more technical topic to deal with and may just ruin your basic
understanding of the above simple sample accounting entries. I intend to discuss more of
the special entries in my succeeding article on accounting for VAT. Of course, the above
are sample illustrative entries only, and you are free to make enhancements. Account
titles may vary depending on the chart of accounts adopted by your company.
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VAT through our program Value-added Tax, Ins and Outs
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(http://taxacctgcenter.org/wp-content/uploads/2012/06/Resume-ID.jpg)
(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He
is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged
in active tax practice for more than seven (7) years now and a professor of taxation
for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance
and tax management resulting to tax savings rendering tax studies, opinions, consultancies and
other related services. For comments, you may please send mail at
garry.pagaspas@taxacctgcenter.org.)
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an
expert opinion. Please consult your preferred tax and/or legal consultant for the specific details
applicable to your circumstances.
Related Services
Bookkeeping Services.With our years of practice and being with the academe, we are
confident that we could assist you maintain your books of accounts and prepare your tax
returns in the light of the present rules, and regulations. We understand your financials
and charges are at reasonable rates.
Tax Management and Compliance Consultancies.With our tax services, we can assist
you ensure tax compliance and in the management of such continuing compliance. Proper
compliance would bring about tax savings form avoiding being penalized to tax
minimization strategies.
Quality Seminars and Trainings (http://taxacctgcenter.org/indexpage/quality-seminarstrainings-and-workshops/). We conduct other seminars, workshops and trainings on BIR
tax compliance that you may learn to do your bookkeeping your own or at least develop
working knowledge sufficient to supervise the work of your hired bookkeeper.
Hereunder are our programs you could choose from:
Basic Business Accounting and BIR Compliance for VAT-registered
(http://taxacctgcenter.org/programs/basic-business-accounting-bir-compliance-vatcorp/)
Basic Business Accounting and BIR Compliance for non-VAT registered
(http://taxacctgcenter.org/programs/basic-business-accounting-bir-compliancevat/)
How To Analyze Financial Statements & Management Accounting
(http://taxacctgcenter.org/programs/how-to-analyze-financial-statementsaccounting-for-management/)
Basic Business Taxation, Simplified (http://taxacctgcenter.org/programs/basicbusiness-taxation-simplified/)
Withholding Taxes, Subjects and Applications
(http://taxacctgcenter.org/programs/withholding-taxes-subjects-application/)
Compensation,Computations and Must Know Exemptions
(http://taxacctgcenter.org/programs/compensations-computation-and-mustknow-exemptions/)
Basic Income Taxation for Sole Proprietorship and the New ITR
(http://taxacctgcenter.org/programs/basic-income-taxation-for-sole-proprietorsunder-new-itr/)
Basic Income Taxation for Corporations and the New ITR
(http://taxacctgcenter.org/programs/basic-income-taxation-for-corporationsunder-new-itr/)
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