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 merchandise P10,000, on terms 2/10 n/30, plus a 12% VAT Purchases Input Tax Accounts Payable (P10,000 x 0 .12 = P1,200) (P10,000 x 1.12 = P11,200) 10,000.00 1,200.00 11,200.00 2. Sold merchandise, P18,000, on terms 2/10 n/30, plus a 12% VAT Accounts Receivable Sales Output Tax (P18,000 x 0.12 = P2,160) (P18,000 x 1.12 = P20,160) 20,160.00 18,000.00 2,160.00 3. Returned merchandise, P1,000, plus 12% VAT Accounts Payable
Purchase Returns and Allowances Input Tax (P1,000 x 0.12 = P120) P1,000 x 1.12 = P1,120) 1,120.00 1,000.00 120.00 4. Sales returns, P1,000, plus 12% VAT
Sales Returns and Allowances Output Tax Accounts Receivable (P1,000 x 0.12 = P120) (P1,000 x 1.12 = P1,120) 1,000.00 120.00 1,120.00
5. Partial payment of P1,500 Accounts Payable Cash 1,500.00 1,500.00 6. Partial collection of P2,000 Cash Accounts Receivable 2,000.00 P2,000.00 7. Payment of account within discount period Accounts Payable Purchase discount Input Tax Cash (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) 8,580.00 180.00 21.60 8,378.40 8. Collection of accounting within discount period Cash Sales Discount Output Tax Accounts Receivable (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 16,659.20 340.00 40.80 17,040.00
CASE B: VAT inclusive (VAT is already part of the cost of the item purchased/sold.) Transactions Journal Entries
1. Purchased merchandise, P10,000 VAT-inclusive, on terms 2/10 n/30 Purchases Input Tax Accounts Payable (P10,000/1.12 = P8,928.57) (P8,928.57 x 0.12) = P1,071.43) 8,928.57 1,071.43 10,000.00 2. Sold merchandise, P18,000 VAT-inclusive, on terms 2/10 n/30 Accounts Receivable Sales Output Tax (P18,000/1.12 = P16,071.43) P16,071.43 x 0.12 = P1,928.57) 18,000.00 16,071.43 1,928.57 3. Returned merchandise, P1,000, VAT-inclusive Accounts Payable
Purchase Returns and Allowances Input Tax (P1,000/1.12 = P892.86) (P892.86 x 0.12 = P107.14) 1,000.00 892.86 107.14 4. Sales returns, P1,000, VAT-inclusive
Sales Returns and Allowances Output Tax Accounts Receivable (P1,000/1.12 = P892.86) (P892.86 x 0.12 = P107.14) 892.86 107.14 1,000.00 5. Partial payment of P1,500 Accounts Payable Cash 1,500.00 1,500.00 6. Partial collection of P2,000 Cash 2,000.00
Accounts Receivable 2,000.00 7. Payment of account within discount period Accounts Payable Purchase discount Input Tax Cash (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) 7,500.00 160.71 19.29 7,320.00 8. Collection of account within discount period Cash Sales Discount Output Tax Accounts Receivable (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) 14,660.00 303.57 36.43 15,000.00
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 Input Tax VAT Payable
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) 1,999.20 1,058.40 940.80 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 Input Tax Cash Remittance to BIR 1,999.20 1,058.40 940.80
Assuming Input Tax is P1,999.20 and Output Tax is P1,058.40, the journal entry would be: Output Tax
Creditable Input Tax/Excess of Input Tax Over Output Tax
Cash
To close Input Tax and Output Tax
1,058.40 940.80
