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Value-Added Tax (VAT) Is A Form of Sales Tax

Value-Added Tax (VAT) is a 12% tax on the sale, exchange, or lease of goods and services in the Philippines. There are 3 key VAT accounts: Input Tax, Output Tax, and VAT Payable. Input Tax records VAT on purchases and offsets against Output Tax. Output Tax records VAT on sales. VAT Payable is the net amount owed to the Bureau of Internal Revenue after offsetting Input and Output Tax. The document provides examples of accounting entries for purchases and sales with returns and discounts, and the setup of VAT Payable and remittance to the BIR.

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Feiya Liu
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283 views

Value-Added Tax (VAT) Is A Form of Sales Tax

Value-Added Tax (VAT) is a 12% tax on the sale, exchange, or lease of goods and services in the Philippines. There are 3 key VAT accounts: Input Tax, Output Tax, and VAT Payable. Input Tax records VAT on purchases and offsets against Output Tax. Output Tax records VAT on sales. VAT Payable is the net amount owed to the Bureau of Internal Revenue after offsetting Input and Output Tax. The document provides examples of accounting entries for purchases and sales with returns and discounts, and the setup of VAT Payable and remittance to the BIR.

Uploaded by

Feiya Liu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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VALUE ADDED TAX

Value-Added Tax (VAT) is a form of sales tax.


It is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines a
on importation of goods into the Philippines.
- tax is paid to the government through the BIR
- standard rate: 12%

3 pertinent accounts:
1. Input Tax
2. Output Tax
3. VAT Payable

Input Tax
- temporary contra-liability account
- normal balance: debit
- offset against the Output Tax to determine VAT payable
- used to record VAT on purchases

Output Tax
- temporary liability account
- normal balance: credit
- used to record VAT on sales

VAT Payable
- a liability account
- normal balance: credit
- used to record net liability to BIR after offsetting Input Tax against Output Tax

A. PURCHASES WITH VAT


Scenario 1
ABC Merchandising buys goods for resale worth P112,000 from XYZ Company on
Sept 1, 2020. Terms: 1/10, n/30. ABC pays the amount due to XYZ on Sept 8, 2020.

2020 Purchases 100,000


Sep-01 Input Tax 12,000
Accounts Payable 112,000

Purchase price before VAT 100,000 100%


VAT (12%) 12,000 12%
Purchase price after VAT 112,000 112%

Sep-08 Accounts Payable 112,000


Input Tax 120
Purchase Discount 1,000
Cash 110,880

Payment Sep-08
Purchase Sep-01
Days lapsed 7 within disc. Period
w/ discount

Amount purchased 112,000


Discount 1120
Amount paid 110,880

Discount before VAT 1000 100%


VAT 120 12%
Discount after VAT 1120 112%

Scenario 2
The same facts as in Scenario 1, except that on Sept 2, goods worth P5,000
were returned to the supplier.

Sep-02 Accounts Payable 5,000


Input Tax 535.71
Purchase Returns 4464.29

Return before VAT 4464.286 100%


VAT 535.7143 12%
Return after VAT 5,000 112%

Sep-08 Accounts Payable (112,000-5,00 107,000


Input Tax 114.64
Purchase Discount 955.36
Cash 105,930

Remaining Amount Purchased 107,000


Purchase discount 1070
Amount paid 105,930

Discount before VAT 955.35714 100%


VAT 114.64286 12%
Discount after VAT 1070 112%

B. SALES WITH VAT

On September 5, ABC Merchandising sells goods worth P150,000 to Customer A. Terms: 3/10, n/30.
Customer A returns P10,000 worth of merchandise on September 6, and pays the balance of his account on September 11.

Sep-05 Accounts Receivable 150,000


Output Tax 16,071.43
Sales 133,928.57 150,000.00

Selling price before VAT 133928.57 100%


VAT 16071.429 12%
Selling price after VAT 150,000 112%

Sep-06 Sales Returns 8,928.57


Output Tax 1,071.43
Accounts Receivable 10,000

Selling price before VAT 8928.57 100%


VAT 1071.4286 12%
Selling price after VAT 10,000 112%

Sep-11 Cash (140,000-4,200) 135,800


Output Tax 450
Sales Discount 3,750
Accounts Receivable 140,000
Collection Sep-11
Sale Sep-05
Days lapsed 6 within disc. Period
w/ discount

Remaining amt of sale 140000


Discount rate 3%
Sales discount 4200

Discount before VAT 3750 100%


VAT 450 12%
Discount after VAT 4200 112%

C. SETUP OF VAT PAYABLE & REMITTANCE OF VAT


Assume that only the purchase and sales transactions described above,
are the VAT transactions of ABC Merchandising for the month.
Assume also that Scenario 2 applies for the purchase transactions.
1) Entry to set up VAT payable:
Output Tax 14,550.00
Input Tax 11,349.65
VAT Payable 3,200.35

2) Entry to record remittance of VAT to BIR:


VAT Payable 3,200.35
Cash 3,200.35
vices in the Philippines and
unt on September 11.

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