Accounting for non-vat and vatable registered companies.

The following are transactions of Juan Company for the month of August 2020. The
Company uses periodic inventory system and a non-vat registered company.

August 2020
1 Juan invested the following assets in his business: P400,000 cash, P50,000
worth of desks and chairs and a store equipment valued at P20,000. Mr Juan’s
accounts payable to Mr. Cruz amounting to P12,000 is to be assumed by his
business.

2 Mr Juan bought a computer for his business worth P60,000 giving a P10,000
down payment and the balance payable at the end of the month.

3 Purchased merchandise for cash, P12,000.

4 Purchased office supplies from SM, P18,000. Terms 2/10, n/30.

5 Purchased office supplies on account P3,000

6 Sold merchandise to Mr. A on account, P40,000 terms, 2/10, n/30, FOB

Destination.

7 Paid advertising for the month, P15,000.

8 Purchased merchandise from PX Co., P20,000, terms 1/15, n/30.

9 Cash Sales, P18,000

10 Received a credit for P2,000 from PX Co. as an allowance for a slight defect of
merchandise purchased.

12 Sold merchandise to Ms R on account, P40,000, terms 2/10, n/30, FOB

Destination.

13 Paid freight on sale made to Ms R P1,000

14 Issued check to SM in full payment for the August 4, account

18 Sold merchandise to Mr TJ, P25,000, terms 60-day, a 6% note was received

from Mr TJ.

21 Collected the amount due from Mr. A for his August 6, account

22 Received payment from Ms. R

23 Paid the amount due to PX Co.

31 Paid the August 2, invoice.

P/R
Date Description Debit Credit
2020 August 1 Cash 400,000
Office Furniture 50,000
Store Equipment 20,000
Accounts Payable 12,000
Juan, Capital 458,000
To record investment of owner.

2 Office equipment 60,000

Cash 10,000
Accounts payable 50,000
To record purchase of computer.

3 Purchases 12,000
Cash 12,000
To record purchase of inventory for cash.

4 Office Supplies 18,000

Accounts Payable 18,000
To record purchase of office supplies on account.

5 Office supplies 3,000

Accounts Payable 3,000
To record purchase of office supplies on account.

6 Accounts Receivable 40,000

Sales 40,000
To record sales on account.

7 Advertising expense 15,000

Cash 15,000
To record paid advertising.
 8 Purchases 20,000
Accounts Payable 20,000
To record purchase of inventory on account.

9 Cash 18,000
Sales 18,000
To record cash sales.

10 Accounts payable 2,000

Purchase returns and allowances 2,000
To record a credit memo.

12 Accounts receivable 40,000

Sales 40,000
To record sales on account.

13 Freight -out 1,000

Cash 1,000
To record freight.

14 Accounts payable 18,000

Purchase discount <2% x 18,000> 360
Cash 17,640
To record payment to SM.

18 Notes receivable 25,000

Sales 25,000
To record sales on note.

21 Cash 40,000
Accounts Receivable 40,000
To record collection from Mr A.

22 Cash 39,200
 Sales discount <2% x P40,000> 800
Accounts Receivable 40,000
To record collection from Ms R

23 Accounts payable 18,000

Purchase discount <1% x P18,000> 180
Cash 17,820
To record payment to PX Co.

31 Accounts payable 50,000

Cash 50,000
To record payment to Aug 2 invoice.

Businesses subject to business taxes are required to pay taxes due to the Bureau of Internal
Revenue (BIR) according to the National Internal Revenue Code of the Philippines.

One kind of tax is the value added tax (VAT). VAT is a tax on consumption levied on the sale
of goods and services and on the imports of goods in the Philippines. It is an indirect tax,
which can be passed on to the buyer.

In a sale transaction, a 12% output VAT is levied on customers and added to the selling
price. In purchase transaction,a 12% input VAT is being paid to suppliers in addition to the
purchase price. Invoice price = Selling price + 12% VAT.

Output VAT account has a credit balance, the input VAT account has a debit balance; the
excess of output tax over input tax is known as VAT Payable. VAT Payable is a current
liability until the same is remitted to the BIR.

Selling price P100,000 (exclusive)

Add: 12% VAT 12,000
Invoice price P112,000 / 1.12= 100,000 = sales or purchases (inclusive)

The following were selected from among the transactions completed by the RST Company
during March 2021. (Assume the company is a vat registered business and assume 12% vat
is inclusive in the amounts in the transactions.)

March 2021

2 RST sold and shipped merchandise worth P280,000 to AJ Co. Terms: 1/15,
n/30.
4 AJ Co, reported P5,600 of merchandise damaged in shipment and a credit
memo was issued for this.

6 Purchased office supplies for P3,248 cash.

7 Sold P112,000 of merchandise to Ivy Co., terms: 2/10, n/30

8 Purchased merchandise for P224,000 cash.

10 Cash sales for the first 10 days is P168,000.

12 Purchased merchandise worth P280,000 terms: 20% Downpayment, balance

2/10, n/30.

14 Returned defective merchandise worth P28,000 purchased on March 12.

Accounts Payable -March 12

3-12 280,000 x 80%= 224,000
3-14 28,000
Balance- 196,000

16 Received full payment from AJ Co for sale on March 2.

17 Received full payment from Ivy Co.

22 Paid commission of salesmen, P50,000.

22 Paid in full the purchase dated March 12.

31 Cash sales for the last 20 days P224,000.

P/R
Date Description Debit Credit
2021 March 2 Accounts Receivable 280,000
Output VAT <250,000 x 12%> 30,000
Sales <280,000 /1.12> 250,000

4 Sales Returns and allowance <5,600/1.12> 5,000

 Output VAT <5,000 x 12%> 600
Accounts Receivable 5,600

6 Office supplies <3,248/1.12> 2,900

Input VAT <2,900 x 12%> 348
Cash 3,248

7 Accounts Receivable 112,000

Output VAT <100,000 x 12%> 12,000
Sales <112,000 /1.12> 100,000

8 Purchases <224,000 /1.12> 200,000

Input VAT <200,000 x 12%> 24,000
Cash 224,000

10 Cash 168,000
Output VAT <150,000 x 12%> 18,000
Sales <168,000 /1.12> 150,000

12 Purchases <280,000/ 1.12> 250,000

Input VAT <250,000 x .12> 30,000
Cash <20% x 280,000> 56,000
Accounts Payable <80% x 280,000> 224,000

14 Accounts payable 28,000

Purchase returns and allowances <28,000/1.12 25,000
Input VAT <25,000 x 12%> 3,000

16 Cash <274,400 x 99%> 271,656

 Sales discount <274,400 /1.12 x 1%> 2,450
Output VAT <2,450 x 12%> 294
Accounts Receivable <280k-5.6k> 274,400

17 Cash <112,000 x 98%> 109,760

Sales discount <112,000/1.12 x 2%> 2,000
Output VAT <2,000 x 12%> 240
Accounts Receivable 112,000

22 Commission expense 50,000

Cash 50,000

22 Accounts payable <224,000-28,000> 196,000

Purchase discount <196,000 /1.12 x 2%> 3,500
Input VAT <3,500 x 12%> 420
Cash <196,000 x 98%> 192,080

31 Cash 224,000
Output VAT <200,000 x 12%> 24,000
Sales <224,000/1.12> 200,000

VATABLE NON-VAT
List price: P100,000 100,000
Trade discount: 10%, 20%
10% = 100,000 x 10% P10,000
20%= (P100,000-10,000) x 20% P18,000 -28,000 -28,000
Selling price /Invoice price P72,000 72,000
Add: 12% Vat + 8,640
Invoice price P80,640 P72,000

seller (vatable) buyer (vatable)

Cash/AR 80,640 Purchase 72,000
Output vat 8,640 Input VAT 8,640
Sales 72,000 Cash/AP 80,640
Solution to Assignment # 1

On November 29, 2020, AAA Co. purchased merchandise on account with a list
price of P100,000, subject to trade discount of 20%, 10%, 5%, with credit terms of
2/10, n/30.

1. How much is the invoice price?

List price P100,000

Less: Trade discounts
20% x P100,000= P20,000
10% x P80,000= 8,000
5% x P72,000= 3,600 31,600
Invoice Price P68,400

2. At what amount should AAA Co. debit Purchases?

Debit credit
Nov 29 Purchases 68,400
Accounts Payable 68,400

3. How much is the trade discount?

Total Trade Discount P31,600

4. How much is the cash discount?

Invoice Price P68,400

Cash discount rate X 2%
Cash Discount P1,368

5. Up to what date is the discount period?

Date of sale Nov 29

+ 10 days + 10
Discount period Nov 30- December 9
6. If AAA make payment on December 9, how much should it pay in full
settlement of its account?

Invoice Price P68,400

Less: cash discount -1,368
Full settlement P67,032

7. If AAA make payment on December 11, how much should it pay in full
settlement of its account?

Invoice Price P68,400

Less: cash discount not availed Not applicable
Full settlement P68,400

Invoice Date: July 2; List price: P50,000; trade discount: 20%, 30%; credit term:
2/10, n/30; Date Paid: July 12. How much is the amount paid by the buyer in full
settlement of the account?

List price P50,000

Less: Trade discounts
20% x P50,000= P10,000
30% x P40,000= 12,000 22,000
Invoice Price P28,000
Less: Cash Discount P28,000 x 2% -560
Full settlement P27,440

Invoice Date: Oct 12; List price: P80,000; trade discount: 1%, 2%, 3%; credit term:
3/10, n/40; Date Paid: Oct 22. How much is the amount paid by the buyer in full
settlement of the account?

List price P80,000

Less: Trade discounts
1% x P80,000= P800
2% x P79,200= 1,584
3% x P77,616= 2,328.48 4,712.48
Invoice Price P75,287.52
Less: Cash Discount P75,287.52 x 3% -2,258.6256
Full settlement P73,028.8944

Invoice Date: Feb 15; List price: P80,000; trade discount: 5%, 7%, credit term:
2/10, 1/15, n/30; Date Paid: March 1. How much is the amount paid by the buyer
in full settlement of the account?

List price P80,000

Less: Trade discounts
5% x P80,000= P4,000
7% x P76,000= 5,320 9,320
Invoice Price P70,680
Less: Cash Discount P70,680 x 1% -706,80
Full settlement P69,973.20

S Co. sold merchandise to B Co. on May 1 at a list price of P100,000, trade

discount of 5% and 10%, FOB destination. Cash discount terms 3/eom, n/60. B Co.
paid freight on May 5 amounting to P5,000. Because defective merchandise
amounting to P3,000 was erroneously delivered, S Co. issued a credit
memorandum to B Co. on May 7. B Co. paid in full the balance due on May 31.
(Both companies are using periodic inventory system)

Seller’s book Buyer’s book

May 1 Accounts Receivable 85,500 May 1 Purchases 85,500
Sales 85,500 Accounts Payable 85,500

May 5 Freight-out 5,000 May 5 Accounts Payable 5,000

Accounts Receivable 5,000 Cash 5,000

May 7 Sales Returns and allowances 3,000 May 7 Accounts Payable 3,000
Accounts Receivable 3,000 Purchase Returns and allowances 3,000

May 31 Cash 75,025 May 31 Accounts Payable 77,500

Sales Discount 2,475 Purchase Discount 2,475
Accounts Receivable 77,500 Cash 75,025
Solution to Quiz # 1

Indicate the normal balance of each account title/ classification

Debit or Credit Account Classification
Inventory debit asset
Purchases debit expense
Freght-in debit adjunct
Purchase returns and credit contra
allowances
Purchase discount credit contra
Sales credit income
Sales returns and debit contra
allowances
Sales discount debit contra
Freight- out debit expense
Accounts Payable credit liability

Under the periodic inventory system, the account debited to record the cost of
merchandise purchased is
Inventory
Purchases
Purchase returns and allowances
Purchase discount

The inventory system that requires the maintenance of stock card is

Perpetual system
Periodic system
FOB destination
FOB shipping point

The seller bears the transportation cost of merchandise sold if the terms of
shipment is
FOB Shipping point
FOB Destination
Freight Prepaid
Freight Collect

The terms of shipment wherein title or ownership to goods is transferred from the
seller to the buyer only upon the buyer's receipt of merchandise
FOB Shipping point
FOB Destination
Freight Prepaid
Freight Collect
The following are contra accounts except
Sales Discount
Allowance for bad debts
Purchase Returns and Allowances
Sales

An account that is deducted from its related account

Adjunct account
Contra account
Transportation-in
Purchases

What is classified as adjunct account?

Sales Returns and Allowances
Purchase Discount
Transportation-in
Inventory

Which is not reflected in the accounting books?

Trade discount
Sales Return
Sales Discount
Purchase Discount

A discount offered to encourage the early payment of account

Trade discount
Cash discount
Purchase Allowances
Purchase Returns

The major expense of a merchandising business is

Rent expense
Cost of goods sold
Depreciation expense
Uncollectible accounts expense

If a merchandise purchased is returned, the buyer may inform the seller of the
details by issuing
a debit memorandum
a credit memorandum
an invoice
a bill
Matteo purchased merchandise, the invoice for P90,000 includes P5,000 freight
and terms 3/15, n/30. Merchandise in the amount of P10,000 was returned, and
the balance of the invoice was paid within the discount period. How much cash
was disbursed by Matteo in full settlement of the account?

Invoice Price with Freight P90,000

Less: Freight 5,000
Invoice Price without Freight P85,000
Less: Returned 10,000
P75,000
Less: Cash Discount 2,250
P75,000x3%
P72,750
+ Freight 5,000
Full Settlement P77,750

On May 25, Matteo purchased merchandise with the list price of 55,000, subject to
trade discounts of 1%, 2%, 3% and terms 2/10, n/30. A. How much is the invoice
price?

List Price P55,000

Less: Trade Discount
1%xP55,000= 550
2%xP54,450= 1,089
3%xP53,361= 1,600.83 3,239.83
Invoice Price P51,760.17

On May 25, Matteo purchased merchandise with the list price of 55,000, subject to
trade discounts of 1%, 2%, 3% and terms 2/10, n/30. B. If Matteo paid on June 4,
how much will he paid in full settlement of the account?

Invoice Price P51,760.17

Less: Cash Discount P51,760.17x2% 1,035.2034
Full Settlement P50,724.9666
On May 25, Matteo purchased merchandise with the list price of 55,000, subject to
trade discounts of 1%, 2%, 3% and terms 2/10, n/30. C. If Matteo paid on June 5,
how much will he paid in full settlement of the account?

Invoice Price P51,760.17

Less: Cash Discount not availed
Full Settlement P51,760.17

On May 25, Matteo purchased merchandise with the list price of 55,000, subject to
trade discounts of 1%, 2%, 3% and terms 2/10, n/30. D. What is the Journal entry
for June 4 transaction?

June 4 Accounts payable 51,760

Purchase discount 1,035
Cash 50,725

On May 25, Matteo purchased merchandise with the list price of 55,000, subject to
trade discounts of 1%, 2%, 3% and terms 2/10, n/30. D. What is the Journal entry
for June 5 transaction?

June 4 Accounts payable 51,760

Cash 51,760

Matteo sold merchandise to BBB on August 15 at invoice price of P10,000, FOB

Destination, cash discount terms: 3/eom,n/60. BBB paid the freight on August 18
amounting to P2,500. Because defective merchandise amounting to P1,000 was
erroneously delivered, Matteo issued a credit memorandum to BBB on August 20.
BBB paid in full the balance due on August 31. (Both company uses periodic
inventory system). What is the Journal entry for August 31 transaction in the
books of Matteo?

August 31 Cash 6,230

Sales Discount 270
Accounts Receivable 6,500
Matteo sold merchnadise to BBB on August 15 at invoice price of P10,000, FOB
Shipping point, cash discount terms: 3/eom,n/60. BBB paid the freight on August
18 amounting to P2,500. Because defective merchandise amounting to P1,000
was erroneously delivered, Matteo issued a credit memorandum to BBB on August
20. BBB paid in full the balance due on August 31. (Both company uses periodic
inventory system). What is the Journal entry for August 31 transaction in the
books of BBB?

August 31 Accounts Payable 6,500

Purchase Discount 270
Cash 6,230