ACCOUNTING FOR VALUE ADDED TAX

VAT or value added tax is a kind of tax imposed on sellers of goods or services. Most trading
firms, whether wholesalers or retailers, manufacturing firms, service firms like Meraldo, PLDT, even
professionals like CPAs, doctors and lawyers are subject to the payment of VAT.

Value added tax is called output tax from the point of view of the seller and input tax from the
point of view of the buyer. Returns, allowances and cash discounts are also subject to VAT. The
amount to be paid to the BIR is the excess of output tax over input tax. The tax rate is 12%.

ILLUSTRATION
1. Amount of gross sale: 22,400
Sale to be recorded = 22,400/1.12 = 20,000
Output tax = 20,000 X .12 = 2,400 or 22,400 – 20,000 = 2,400

2. Amount of sales return or allowance or sales discount: 3,360

SRA or SD to be recorded = 3,360/1.12 = 3,000
Deduction from output tax = 3,000 X .12 = 360 or 3,360 – 3,000 = 360

3. Amount of gross purchase: 44,800

Purchases to be recorded = 44,800/1.12 = 40,000
Input tax = 40,000 X .12 = 4,800 or 44,800 – 40,000 = 4,800

4. Amount of purchase return or allowance or purchase discount: 672

PD or PRA to be recorded = 672/1.12 = 600
Deduction from input tax = 600 X .12 = 72 or 672 – 600 = 72
PROBLEM 1
Danessa Trading of Atimonan, Quezon records value added tax in his transactions. The
following are some of his transactions for September, 2014:
Sept. 1 Bought merchandise from Citas of Payatas, 89,600. Terms: 25% downpayment,
balance, 2/10, n/30,

Entry: Purchases 89,600/1.12 80,000

Input tax 12% X 80,000 9,600
Cash – 25% X 89,600 22,400
AP-Citas 67,200 ?
25% dp, bal, 2/10, n/30
2 Paid X Trucking for the freight on the goods bought yesterday, 3,360.
Freight in 3360/1.12 3,000
Input tax .12 X 3000 360
Cash 3360
Freight paid
3 Received a credit memo from Citas for goods returned, 4,480.
A/P-Citas 4480
PRA 4480/1.12 4000
Input tax .12 X 4000 or 4480 – 4000 480
Goods returned
4 Bought merchandise from Anton of Malabon, 100,800. Terms: 30% down, balance,
2/10, n/30,
5 Received a credit memo from Anton as allowance on damaged goods, 5,600.
6 Bought goods from Santos of Pateros, 123,200. Terms: 40% down, 18-day, 12%
33,600 note, balance, 2/10, n /30,
7 Paid the freight on the goods bought yesterday, 6,720.
8 Received a credit memo from Santos for goods returned, 7,840.
11 Paid Citas in full of account. .
A/P-Citas - 67200 -4480 62720
PD (2% X 62720) / 1.12 1120
Input tax .12 X 1120 134.40
Cash or 62720 – (2% X62720 61465.60 ?
Full payment
1
 14 Paid in full the account due to Anton..
16 Paid the open account due to Santos.
24 Paid Total for gasoline bought, 3,500.
25 Cash purchases to date, 110,880.

Then do the rest of the transactions.

REQUIRED
Journal entries to record the above transactions.

PROBLEM 2
The following are the transactions of Kristel (a Vat-registered taxpayer) of Kontil, Quezon:
Oct. 3 Sold merchandise to Juan of Tagkawayan, 22,400. Terms: 2/10, n/30
A/R-Juan 22400
Sales 22400/1.12 20000
Output tax .12 X 20000 2400 0r 22400-20K
Terms: 2/10, n/30
4 Paid the freight on the sale yesterday, 672.
Freight out 672/1.12 600
Input tax .12 X 600 72
Cash 672
Freight paid
5 Issued a credit memo to Juan for defective goods returned, 1,120
SRA 1120/1.12 1000
Output tax .12 X 1000 120
A/R – Kristel 1120
Goods returned
8 Sold merchandise to Monay of Mulanay, 27,500. Terms: 20% down, balance,
2/10, n/30
10 Paid Raymond Bus for the freight on the sale on the 8th, 1,120.
11 Issued a credit memo to Monay as allowance on damaged goods, 1,680.
12 Sold merchandise to Trudis of San Andres, 84,000. Terms: 30% down, 18%, 12-day
28,000 note, balance, 2/10, n/30
13 Collected from Juan in full of account.
SD (2% X 22400) / 1.12 400
Output tax .12 X 400 48
Cash 22400 – (2% X 22400) 21952 or ?
A/R –Juan 22400
Full collection

15 Issued a credit memo to Trudis for goods returned, 4,480.

18 Collected in full the account due from Monay.
22 Collected in full the open account due from Trudis.
24 Collected the note due from Trudis.
25 Cash sales to date, 168,000.
Then continue
REQUIRED
Journal entries for the above transactions.

PROBLEM 3
Following are selected transactions of Danicalaba Trading, a VAT-registered store:
Sept. 1 Bought merchandise from Abo, 57,600. Terms: 2/10, n/30
3 Received a credit memo from Abo for damaged goods returned, 2,800.
4 Paid Raymond Liner for the freight on the purchase on Sept. 1, 3,584
5 Sold merchandise to Rico, 95,200. Terms: 20% down, 15%, 15-day, 30,000 note,
balance, 3/10, 2/15, n/30
6 Issued a credit memo to Rico as allowance on damaged merchandise, 3,696
7 Bought office equipment from Atlas Co, 29,120. Terms: COD
8 Cash sales to date, 108,080.
2
 9 Cash purchases from various suppliers, 91,840.
10 Paid Abo in full of account.
11 Bought merchandise from Marco, 84,000. Terms: 30% down, 18%, 18-day, 18,000
note, balance, 2/10, n/30
12 Paid the water bill to QMWD, 2,688.
13 Received a credit memofrom Marco as allowance on damaged goods, 5,040.
14 Sold merchandise to Nonoy, 62,720. Terms: 25% down, balance, 3/10, n/30
15 Paid salaries of employees, 8,850.
Collected from Rico in full of open account.
16 Bought foods from Jollibee for entertainment of guests, 1,344.
17 Bought merchandise from Rey, 72,800. Terms: FOB shipping point, freight prepaid,
2/10, n/30
18 Received a debit memo from Rey for the freight that he paid on the shipment yesterday,
3,360
19 Received a credit memo from Rey for damaged goods returned, 6.720.
20 Collected the note due from Rico.
21 Paid in full the open account due to Marco.
22 Bought office supplies from Sunlife, 5,376.
23 Cash sales to date, 80,640.
27 Paid Rey in full of account.
28 Paid the note due to Marco.
29 Paid salaries of employees, 12,500 less 5% withholding tax, 3.5% SSS contributions,.
2% Pag-ibig contributions and 1% Philhealth contributions.
30 Closed the output tax and input tax to the VAT payable account.
Paid the value added tax for the month.
REQUIRED
Journalize the above transactions
ACCOUNTING FOR NOTE RECEIVABLE DISCOUNTED
(Continuation of the transactions of Danicalaba)
Oct 1 Received a 30-day, 12% note from Boboy for merchandise sold, 120,000. (Non-VAT)
13 Received proceeds from BDO for the note of Boboy discounted at 15%.
Nov 1 Boboy paid his note to BDO.
11 Sold merchandise to Kakay, 180,000. Terms: n/15
26 Received a 30-day, 18% note from Kakay in full settlement of account.
Dec 7 The note of Kakay was discounted at 12% with Metro Bank.
25 Received notice from Metro Bank that the note of Kakay was not paid. Paid the amount
due to the bank plus protest fee of 5,000.
31 Collected the amount due from Kakay plus 18% interest from the maturity date.