ACTBAS2:

Introductory AccountingPart 2 ValueAdded Tax Under Republic Act 9337 (ValueAdded Tax Reform Law) As amended by Republic Act 9361 ValueAdded Tax It is an indirect tax levied on the selling price of goods or services. General Notes The business is required to be registered under the VAT system when its expected annual gross sales or receipts exceed P1.5 million. If it is expected to be 1.5 million or below, registering under the VAT system is optional. However, the option of registering is more favorable because of the many benefits. A VATregistered business is subject to 12% VAT effective January 1, 2006 based on the gross selling price. Before this date, the VAT was 10%. The ValueAdded Tax is an Input Tax on the part of the Buyer or an Output Tax on the part of the Seller. Input Tax has a normal debit balance while Output Tax has a normal credit balance. The firm is allowed to offset against the Output Tax of the current period the excess of Input Tax over the Output Tax of the previous period. In VAT transactions, the real accounts are affected by the 12% ValueAdded Tax. Such accounts include Cash, Accounts (Notes) Receivable, and Accounts (Notes) Payable. In VAT transactions, the nominal accounts are not affected by 12% VAT. Such accounts include Purchases and Sales, Purchase (Sales) Returns and Allowances, and Purchase (Sales) Discount. At the End of the Month If Output Tax exceeds the Input Tax, the different is credited to VAT Payable, a current liability under Trade and Other Payables. Input Tax and Output Tax are always closed every month in order to match them. If Input Tax exceeds the Output Tax, the different is debited to Creditable Input Tax and carried over to the succeeding month or quarter. For financial statement purposes, the Creditable Input Tax is presented as a specific line item on the Balance Sheet after Prepaid Expenses because it is not a receivable that will be reimbursed. The VAT Payable is reduced by the balance of the Creditable Input Tax on the next month. The Deferred Input Tax is presented as a separate line item after Creditable Input Tax under the current asset section of the Balance Sheet.

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ACTBAS2: Introductory AccountingPart 2 ValueAdded Tax Under Republic Act 9337 (ValueAdded Tax Reform Law) As amended by Republic Act 9361 The Deferred Output Tax is presented as a current nontrade liability together with VAT Payable under the Trade and Other Payables group. BIR Forms Used and Deadline of Filing: The monthly VAT return (BIR Form 2550M) must be filed and paid on or before the 20th day of the month following the taxable month for the first two months of the quarter. The quarterly VAT return (BIR Form 2550Q) is to be filed and paid on or before the 25th day of the month following the close of the quarter. Formulas in Computing the VAT: If the purchase/selling price (P/S) does not include the 12% VAT: xxx 0.12 xx

Purchase/Selling Price (w/o VAT) Multiplied by: VAT percentage Input/Output Tax If the purchase/selling price already includes the 12% VAT:

Purchase/Selling Price (with VAT) Divide by: Input/Output Tax Transactions where the VAT is Recorded: 1. Purchase and sale of merchandise 2. Purchase of store/office Supplies 3. Return of merchandise and store/office Supplies 4. Full payment or full collection within the discount period ProForma Journal Entries A. Buyers Books: 1. Purchase of merchandise Purchases
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xxx 9.33333 xx

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ACTBAS2: Introductory AccountingPart 2 ValueAdded Tax Under Republic Act 9337 (ValueAdded Tax Reform Law) As amended by Republic Act 9361 Input Tax (12% of Purchases account) Cash/Accounts Payable 2. Return of merchandise Cash/Accounts Payable Purchase Returns and Allowances Input Tax (12% of Purchase Returns and Allowances account) 3. Full payment within the discount period Accounts Payable Cash Purchase Discount Input Tax (12% of Purchase Discount account) 4. Full payment beyond the discount period Accounts Payable Cash B. Sellers Books 1. Sale of merchandise Cash Sales Output Tax (12% of Sales account) 2. Return of merchandise by buyer Sales Returns and Allowances Output Tax (12% of Sales Returns and Allowances account) Cash/Accounts Receivable 3. Full collection within the discount period
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ACTBAS2: Introductory AccountingPart 2 ValueAdded Tax Under Republic Act 9337 (ValueAdded Tax Reform Law) As amended by Republic Act 9361 Cash Sales Discount Output Tax (12% of Sales Discount account) Accounts Receivable 4. Full payment beyond the discount period Cash Accounts Receivable Updated Formula for Computing VAT Initial Receivable/Payable (with VAT) Less: Returns and Allowances (Accounts Receivables/Payables) Basis of the discount (with VAT) Multiplied by: Cash Discount Rate Cash Discount (with VAT) Divided by: VAT Inclusive Rate Sales Discount/Purchase Discount (w/o VAT) Cash Discount (with VAT) Divide by: Input/Output Tax xxx 9.33333 xxx xxx xxx xxx xx xxx 1.12 xxx xxx xxx xxx xx xx xxx

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