Accounting for Merchandising Business PDF

CHAPTER 7 ACCOUNTING FOR MERCHANDISING BUSINESS Prepared by: Remedios G. Testigo, CPA Financial Accounting & Reporting 1 (2023 Edition) Baldevarona, Grande, & Munar CPU College of Business and Accountancy LEARNING OBJECTIVES  The students are...

CHAPTER 7 ACCOUNTING FOR MERCHANDISING BUSINESS Prepared by: Remedios G. Testigo, CPA Financial Accounting & Reporting 1 (2023 Edition) Baldevarona, Grande, & Munar CPU College of Business and Accountancy LEARNING OBJECTIVES  The students are expected to be able to:  Differentiate service business from merchandising business.  Identify the different activities or transactions of a merchandising business.  Describe the operating cycle of merchandising business.  Identify the different business forms and documents used in merchandising business.  Journalize the business transactions of merchandising business.  Differentiate periodic inventory system from perpetual inventory system  Compute net sales, cost of good sold and profit or loss for the period of merchandising business.  Prepare financial reports of merchandising business.  Journalize merchandising business transactions with value-added tax (input tax and output tax). CHAPTER SUMMARY This chapter deals with the operation of a merchandising business. It presents the various transactions, documents and the corresponding entries involved in the purchase, handling and sale of merchandise. Topics also Include cash discounts, trade discounts, VAT and the periodic and perpetual inventory system of accounting for inventories. It presents FIFO, average and specific identification of accounting for inventories. NATURE OF MERCHANDISING BUSINESS Merchandising or Trading Concern- is a business organization that purchase and resell goods either in raw or finished form to customers at a profit. - Trading and retailing are terms associated with Merchandising business. - Earns revenue by selling goods or commodities on a wholesale or retail basis. Comparison of service business and merchandising business SERVICE BUSINESS MERCHANDISING BUSINESS  Service businesses derive their  Merchandising businesses derive income from fees on performance their income from the sale of of services. goods they had previously  The output of a service purchased. businesses are services or ideas  The merchandise inventories or which are intangible in nature items for sale of merchandising businesses are tangible in nature.  Figure 7.1 Proforma Income Statement of Service Business and Merchandising Business Service Business Merchandising Business  Net sales revenue P xxx Revenue from services P xxx  Cost of Goods Sold (xxx) Operating Expenses (xxx)  Gross Profit P xxx Profit (loss) for the period P xxx  Operating Expenses (xxx)  Profit (loss) for the period P xxx  ACTIVITIES OF MERCHANDISING BUSINESS 1. Buying otherwise known as purchasing. -the business firm is the buyer. -Merchandise may be bought either in cash or on credit basis. -Taxes included in the purchased price which is passed on or shifted to us by the seller is known as input tax. -If the tax is not billed separately, then the tax is included in the cost of the goods purchased.  ACTIVITIES OF MERCHANDISING BUSINESS 2. Handling - is the cost of transporting and storing the goods before it is sold. Transportation cost includes freight, express, drayage, and cartage. 3. Returningof Goods Purchased - some of the goods purchased and received may have some defects or does not conform with the purchase orders ACTIVITIES OF MERCHANDISING BUSINESS 4.Selling- this activity is the major source of revenue of a merchandising firm. Merchandise may be sold to customers either in cash or on credit term. When we sell the goods purchased, we are liable for EVAT of 12% on such sales. The tax on our sales is called “Output tax”. ACTIVITIES OF MERCHANDISING BUSINESS 5.Returning of goods sold - some of the goods sold may be returned by customers due to some defects or goods delivered does not conform with buyer’s orders. ACTIVITIES OF MERCHANDISING BUSINESS 6.Maintaining adequate stock on hand - stock of goods or merchandise on hand should be maintained in order to satisfy customer orders at all times. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 1. SALES INVOICE This document contains the name and address of the buyer, the date of sale and the information about the goods sold. It specifies the amount of sales, the delivery and payment mode. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 2. BILL OF LADING A document issued by the carrier, trucking, shipping or airline) that specifies contractual conditions and terms of delivery such as freight terms, time, place and the person named to receive the goods. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 3. STATEMENT OF ACCOUNT Formal notice to the debtor detailing the amount already due. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 4. OFFICIAL RECEIPT The document issued by the seller to the buyer. An evidence of cash received from the latter. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 5. DEPOSIT SLIP Bank printed forms with depositor’s name, account number and spaces for, details of the deposit. A validated deposit slip indicates that cash and checks where actually deposited. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 6. CHECKS A written order to the bank by a depositor, to pay the specified amount as indicated in the check, from the checking account of the person named in the check. The issuing party of the check is known as the drawer while the receiver is the payee. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 7. Receiving report - A document containing information about goods received from a vendor or supplier. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 8. CREDIT MEMORANDUM A form used by the seller to notify the buyer that his account is being reduced or credited due to errors or other factors requiring adjustments. BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 9. DEBIT MEMORANDUM A form used by the buyer to notify the seller that his account is debited or reduced due to errors or other factors requiring adjustments BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 10. PAYROLL a list of company’s employees and the amount of money they are to be paid BUSINESS DOCUMENTS OF MERCHANDISING BUSINESS 11. OTHER DOCUMENTS SUCH AS: a. PURCHASE requisition b. PURCHASE ORDER RECORDING OF TRANSACTIONS OF A MERCHANDISING BUSINESS 1. Sales- is the major source of revenue of a merchandising business. is a transfer of legal ownership of goods (called the passage of title) from one party to another. It is accompanied by physical delivery of the goods sold. Each time a sale is made, a revenue account called Sales is credited for the amount of the selling price of the good sold and debited either on Cash or Account Receivable, depending on the terms of sale. RECORDING OF TRANSACTIONS OF A MERCHANDISING BUSINESS 2.Sales Return - is a cancellation of sale, which can be debited directly to the Sales account. However, preferably Sales Returns and Allowances should be used in order to determine for the balance of the said account. 3. Sales Allowances - are deductions from the original sales invoice price. An allowance may be granted to a customer for various reasons such as inferior quality goods received, damaged goods or a deterioration of goods in quality while in transit. Sales allowances could be directly debited to Sales account but in order to determine the amount of sales allowances granted, Sales Allowances or Sales Returns and Allowances may set up. RECORDING OF TRANSACTIONS OF A MERCHANDISING BUSINESS 4. Sales Discounts  Whenever goods are sold on account, the terms of payment are clearly specified on the sales invoice.  When credit periods are long, sellers may offer a cash discount to entice buyer for early payment of their account.  A cash discount is an adjustment from the gross invoice price of the goods sold, which usually ranges from 1 to 3 percent of the gross invoice price.  If cash discounts are availed by the buyer, a Sales Discounts is debited. RECORDING OF TRANSACTIONS OF A MERCHANDISING BUSINESS 5.Freight Out - This account is an operating expense of the business. It represents the transportation expense incurred by the seller in delivering the goods to the buyer. 6. Purchases- The Purchases account is a temporary or nominal account, and is used only for merchandise purchase for resale. Its sole purpose is to accumulate the total cost of merchandise purchased during an accounting period. The payment must be supported by cash sales invoice or charged sales invoice of the supplier. It is debited when merchandise or goods are bought and credited either to cash or accounts payable depending on the terms of transaction. RECORDING OF TRANSACTIONS OF A MERCHANDISING BUSINESS 7. Purchase Returns and Allowances- is a deduction from Purchases. It is credited when defective merchandise is returned to the supplier. It is important that a separate account be used to record purchase returns and allowances because management needs the information for decision making 8. Purchase Discount- This account is credited when the supplier granted the buyer an amount of discount. Discounts are incentives of the company for buyers to pay early. 9. Freight in - If the buyer pays the expenses of transporting the goods from the place of the seller to the place of the buyer, such expenses are debited to Freight In. This account is an addition to the Purchase account. Other accounts used for these expenses are Transportation in, Transportation on Purchases and Inward Transportation.  TERMS OF TRANSACTION Credit period- is a period of time allowed for payment for goods sold on credit/account. There are two types of discounts on merchandise. 1. Trade Discounts- are deductions from the list price of goods purchased to arrive at the selling price. This type of discount is not recorded in the books.  Trade discount may be stated in series of discounts.  TERMS OF TRANSACTION  To illustrate: 1. Assume a credit invoice of P 5,000 Terms: 20, n/30. List Price P 5,000 Less: Trade discount 20% 1,000 Invoice Price P 4,000 2. Assume a credit invoice of P 5,000. Terms: 20 and 10, n/30. List Price P 5,000 Less: 1st Trade discount - 20% 1,000 P 4,000 Less: 2nd trade discount - 10% 400 Invoice Price P 3,600 TERMS OF TRANSACTION 2. Cash Discounts- is a strong way of inducing a buyer to pay their bill within the discount period. Cash discounts are called Purchase Discounts from the buyer’s view point and Sales Discounts from the seller’s point of view. These discounts are recorded in the accounting records.  For example, an invoice of P 10,000, terms: 2/10, n/30, if payment is made on or before the tenth day, a discount of 2% is given, hence instead of paying P10,000, only P9,800 will be paid to settle the account in full.  TERMS OF TRANSACTION  Example of cash discount terms: a. 2/10, n/30 - b. b. 2/10, 1/20, n/40 - c. c. 2/10 EOM - A discount of 2% if the amount is paid in 10 days after the end of the month. Cash discount is computed based on the amount of the invoice less any returns, allowances, and down payment. TERMS OF TRANSACTION Figure 7.3 Parts of a credit term. Net amount 2 / 10, n /30 credit period discount period discount rate  TERMS OF TRANSACTION To illustrate: Assume an invoice of P 20,000 dated Jan. 1, 2018; Terms: 10, 2/10, n/30. The journal entries on the buyer’s and seller’s books are as follows: Buyer’s Book Seller’s Book 1-1 Purchases 18,000 1-1 Accounts Rec. 18,000 Accounts Payable 18,000 Sales 18,000 Jan 11 Payment was made within the discount period 1-11 Accounts payable 18,000 1-11 Cash 17,640 Purchase Discounts 360 Sales Discounts 360 Cash 17,640 Accounts Rec. 18,000 If payment is made after the discount period Accounts Payable 18,000 Cash 18,000 Cash 18,000 Accounts Rec. 18,000 * Purchases of P20,000 less 10% trade discount  INVENTORY METHODS 1.Periodic Inventory System calls for the physical counting of goods on hand at the end of the accounting period to determine quantities. This approach gives actual or physical inventories. INVENTORY METHODS 2.The perpetual Inventory system requires the maintenance of records called stock cards that usually offer a running summary of the inventory inflow and outflow. When the perpetual system is used, a physical count of the units on hand should at least be made once a year or at frequent interval to confirm the balances appearing on the stock card. Comparison of Periodic and Perpetual Inventory System Method Periodic Perpetual When commonly used by business When individual inventory items have small When individual inventory items represents a relatively peso amounts large peso amount. When advanced computer software is used Account used to record purchases Purchases Inventory Accounts used related to purchases and Purchases Merchandise Inventory sales Purchase returns and allowance Cost of sales Purchase discounts Freight in Merchandise Inventory Income summary Adjustment to inventory account when No adjustment to inventory account Cost of inventory sold is transferred to Cost of goods sale is made Cost of goods sold is computed in the income sold account statement Adjustment to inventory account at year Adjust inventory account to agree with the Adjust inventory account balance to agree with the end physical count and merchandise value. Set up physical count and merchandise value when ending merchandise inventory. necessary Cost of goods sold and ending inventory Requires physical counting of goods. Cost of goods sold and ending inventory may be balance determination determined from the accounting records without a Cost of goods available for sale xx physical counting of goods. Ending inventory (xx) Cost of goods sold xx Need of physical count To determine the ending inventory To confirm the presence of the ending inventory as recorded in the books.  Illustrative Problem: Periodic Inventory System Perpetual Inventory system 1. Sold merchandise on account costing P 8,000 at a selling price of P10,000; Terms; were 2/10, n/30. Accounts Receivable 10,000 Accounts Receivable 10,000 Sales 10,000 Sales 10,000 Cost of Sales 8,000 Inventory 8,000 2. Customer returned merchandise costing P400 that had been sold on account for P500 (part of the P10,000 sales). Sales Returns & allowance 500 Sales Ret. & Allowance 500 Accounts Receivable 500 Accounts Receivable 500 Inventory 400 Cost of Sales 400 3. Received payment from customer for merchandise sold above [Cash discount taken: ( P10,000 sales P500 returns) x 2% discount = P 190] Cash 9,310 Cash 9,310 Sales Discount 190 Sales Discount 190 Accounts Receivable 9,500 Accounts Receivable 9,500 4. Purchased on account merchandise for resale for P6,000; Terms were 2/10, n/30 (purchases recorded at invoice price). Purchases 6,000 Inventory 6,000 Accounts Payable 6,000 Accounts Payable 6,000 5. Paid P200 freight on the P6,000 purchases: Terms were FOB Shipping Point, Freight Collect. Freight in 200 Inventory 200 Cash 200 Cash 200 6. Returned merchandise costing P 300 (part of P 6,000 purchases) Accounts Payable 300 Accounts Payable 300 Purchases Ret. & Allow. 300 Inventory 300 7. Paid for merchandise purchased (cash discount take: P6,000 purchases – P300 returns x 2% discount = P114) Accounts Payable 5,700 Accounts Payable 5,700 Purchases Discount 114 Inventory 114 Cash 5,586 Cash 5,586 8. To transfer the beginning inventory balance to the Income Summary account (part of the closing entries under the period inventory system). Income Summary 25,000 No entry required Inventory 25,000 9. To record the ending balance (part of the closing entries under the periodic inventory system). Inventory 23,150 No entry required Income Summary 23,150 10. To adjust the ending perpetual inventory balance for the shrinkage during the year. Shrinkage already effected in No. 9 entry Cost of Goods Sold 36 Inventory 36  FREIGHT ON MERCHANDISE (TRANSPORTATION COST) F.O.B. shipping point means free on board at the shipping point; that is, buyer incurs all transportation costs after the merchandise is loaded on cars or on trucks at the point of shipment. F.O.B destination means that the seller incurs all transportation charges to the destination of the shipment. In general, title to the goods passes from the seller to the buyer at the point at which the buyer becomes responsible for the transportation charges. Owner of the goods while in Transit: FOB Shipping Point = Buyer FOB Destination = Seller Who pays the shipper? Freight Collect = Buyer Freight Prepaid = Seller FREIGHT ON MERCHANDISE (TRANSPORTATION COST) Freight payments, may be paid in cash or incurred on account. It is carried in the books as freight out or freight in. A debit account balance and may either be prepaid or collect. It is freight prepaid if payment was made before goods are transported or shipped to the buyer’s place. However, freight is said to be collect if payment is made upon the delivery of the goods. FREIGHT ON MERCHANDISE (TRANSPORTATION COST) Transportation or freight on merchandise may be billed to the buyer on the following basis: 1. F.O.B shipping point. Freight prepaid. 2. F.O.B shipping point. Freight collect. 3. F.O.B destination. Freight prepaid. 4. F.O.B destination. Freight collect.  Example: Valle Company sold merchandise to Smart Co. of Manila, The invoice showed the following: Price Merchandise P 10,000 Freight cost to Manila 1,000 P 11,000 Buyer’s Book Seller’s Book Purchases 10,000 Account Receivable 11,000 Freight in 1,000 Sales 10,000 Accounts Payable 11,000 Cash 1,000 Purchases on account. Sales on account. Analysis: FOB Shipping Point means that the cost of freight will be shouldered by the buyer from shipping point to destination. The freight cost was paid in advance by the seller. Since the buyer will be shouldering the freight cost but was paid by the seller, therefore, the buyer has an additional liability to the seller. Buyer’s accountability to the seller is the cost of merchandise plus the freight cost.  2. FOB Shipping Point. Freight Collect. Buyer’s Book Seller’s Book Purchases 10,000 Account Receivable 10,000 Freight in 1,000 Sales 10,000 Accounts Payable 10,000 Sales on account. Cash 1,000 Purchases on account. Analysis: In this case, the buyer will shoulder the cost of freight and at the same time pays for the freight cost upon delivery of the goods. Buyer’s accountability will be the cost of merchandise only.  3. FOB Destination. Freight Prepaid. Buyer’s Book Seller’s Book Purchases 10,000 Account Receivable 10,000 Accounts Payable 10,000 Freight Out 1,000 Purchases on account. Sales 10,000 Cash 1,000 Sales on account. Analysis: Under FOB Destination, the seller will shoulder the cost of freight, and also pays the freight in advance before goods are delivered to the buyer. Buyer’s accountability will be the cost of merchandise only.  4. FOB Destination. Freight Collect. Buyer’s Book Seller’s Book Purchases 10,000 Account Receivable 9,000 Accounts Payable 9,000 Freight Out 1,000 Cash 1,000 Sales 10,000 Purchases on account. Sales on account. Analysis: In this case, the seller will shoulder the cost of freight but it was the buyer who pays for the freight in behalf of the seller upon delivery of the goods to the buyer’s place. Therefore, buyer’s accountability to the seller is the cost of merchandise minus the freight cost. SAMPLE PROBLEMS Problem 1 May 11 - Hope Enterprises. sold merchandise to Peace Trading, P 12,000. Terms: 2/10, 1/30, n/60. 11 - Paid the freight on merchandise sold to Peace Trading, P 600 cash. 15 - Issued a credit memo to Peace Trading for defective merchandise returned to us worth, P 2,000. June 5 - Received a check from Peace Trading in full settlement of their account. Problem 2 June 10 - Hope Enterprises. Sold merchandise to Praise Trading, P30,000, subject to trade discount of 10, terms 2/10, n/30. 15 - Received a check in full payment of account. 21 - Sold merchandise to Praise Trading, P20,000 subject to trade discount of 10 and 5, balance, 2/10, n/30. 25 - Issued a credit memo to Praise Trading for defective merchandise returned, P2,100. July 8 - Received a check from Praise Trading in full settlement of their account. Problem 3 March 5 - Jaja Store purchased from Datapro an office computer, P50,000. Terms: 10% down, balance n/30 days. 5 - Paid freight charges P 2,000 on office equipment. 6 - Paid installation costs, P 3,000. 7 - Received credit from Datapro for some minor defects on the equipment, P 5,000. April 4 - Issued a 20-day, 18% note to Datapro in settlement of account with them. 24 - Issued check payable to Datapro in payment of the note plus interest due. COMPUTATIONS OF COST OF GOODS SOLD Cost of good sold or cost of sales- is the largest single expense of the merchandising business. It is the cost of inventory that the entity has sold to customers. EXAMPLE: The selected ledger account balances as of June 30 covering a six-month period showed the following: Merchandise Inventory (Jan 1)..............................................P 328,400 Purchases...................................................................... 665,300 Purchase Returns & Allowances............................................. 23,670 Purchase Discounts........................................................... 19,250 Freight In....................................................................... 85,110 A physical count of the unsold merchandise as of June 30 amounted to P 410,500. Required: Determine the cost of goods sold. Solution: COMPUTATION OF PROFIT OR LOSS FOR THE PERIOD Inventory, Jan 1 P 328,400 Purchases P 665,300 Purchase Returns & Allowances P (23,670) Purchase Discounts (19,250) (42,920) Total P 622,380 Freight In 85,110 Net Purchases 707,490 Inventory available for sale P1,035,890 Inventory, June 30 ( 410,500) Cost of Goods Sold P 625,390 COMPUTATION OF PROFIT OR LOSS FOR THE PERIOD Sales xx Sales Returns & Allowances (xx) Sales Discounts (xx) (xx) Net Sales xx Cost of Goods Sold (xx) Gross Profit xx Operating Expenses (Itemized) (xx) Net Income (Net Loss) xx ==  Using the same data above and the additional account balances provided below, compute for a. gross profit and b. profit (loss) from operations Solution: Notes: Sales discounts may be presented as other expenses and purchases discounts as other income. Sales P 1,925,000 Sales Discounts 33,320 Sales Returns & Allowances 12,550 Operating Expense (Total) 864,160 Sales P 1,925,000 Sales Discount P (33,320) Sales Return & Allowances (12,550) (45,870) Net Sales P 1,879,130 Cost of Goods Sold (example 8) (625,390) Gross Profit P 1,253,740 (a) Operating Expenses (864,160) Profit from operation P 389,580 (b) RECORDING OF PURCHASES WITH VALUE ADDED TAX (VAT 12%) Transactions Journal Entries 1. Purchase merchandise costing Purchases 50,000 P50,000 in cash. EVAT is 12%. Input Tax 6,000 Cash 56,000 2. Purchased merchandise costing Purchases 50,000 P50,000 on account. Terms: 2/10, Input Tax 6,000 n/30. EVAT is 12%. Accounts payable 56,000 3. Paid the merchandise purchased after Accounts Payable 56,000 the discount period. Cash 56,000 Note: If the invoice appeared as follows, then Value added tax has been “billed separately”. Merchandise P 50,000 12% EVAT 6,000 Total invoice amount P 56,000 If EVAT is “not billed separately”, the invoice will appear as follows: Merchandise with 12% EVAT P 56,000 Input tax is the differences between the invoice price (amount including EVAT) and the purchase price (amount excluding EVAT). If invoice price is given, the purchase price excluding EVAT is computed as follows: P 56,000 ------------------- = P50,000 112% Input tax = P56,000 – P50,000 = P6,000 or P50,000 x 12% = P6,000 4. Supposed P10,000 worth of Cash 11,200 merchandise was returned to the supplier. Purchase Ret. & Allow. 10,000 The merchandise was purchased in cash. Input Tax 1,200 5. If merchandise worth P10,000 was Accounts Payable 11,200 returned to supplier. The merchandise Purchase Ret. & Allow. 10,000 was purchased on account. Input Tax 1,200 6. Suppose merchandise purchased on Accounts payable 56,000 account in no. 2 was paid within the Purchase Discount 1,000 discount period. Input tax 120 Cash 54,880 Note: Purchase discounts of 2% is computed based on the P50,000 actual cost of merchandise purchased. The amount of Input tax which was previously charged to us by the seller will be decreased by 12% of the purchased discounts which is P120 (P1,000 x 12%). The amount of cash discount is computed net of the purchase returns and allowances 7. Suppose a merchandise was Purchases 47,500 purchased in cash, cost P50,000. Input Tax 5,700 A trade discount of 5% is given. Cash 53,200 Note: Cash discount is recorded in the books of the buyer but trade discount is not. 8. Sold merchandise for P 60,000 in cash. Cash 67,200 Cost is P50,000 EVAT is 12%. Sales 60,000 Output Tax 7,200 Note: The 12% VAT was added to sales of P 60,000, making our cash collection to P67,200. The P7,200 pass on to customers is “Output Tax” on sales. 9. Sold merchandise for P60,000 on Accounts Receivable 67,200 account. Cost is P50,000. Sales 60,000 Term: 2/10, n/30. EVAT is 12% Output Tax 7,200 10. Of the P60,000 worth of merchandise Sales Return & Allow. 5,000 sold in cash, P 5,000 was returned by Output Tax 600 customer. Cash 5,600 11. Suppose that the merchandise returned Sales Return & Allow. 5,000 in transaction 10, was sold on account. Output Tax 600 Accounts Receivable 5,600 12. Merchandise sold on account was Cash 65,856 collected and a 2% discount is given. Sales Discount 1,200 Output Tax 144 Accounts Receivable 67,200 Note: The amount of discount is computed based on P60,000 worth of merchandise sold. The Output tax 12% which have been passed already to customer will be removed from the amount of the sales discount which is P 1,200 x 12% = P144). 13. Merchandise sold for P60,000 in cash is Cash 63,840 a given 5% trade discount. Sales 57,000 Output Tax 6,840 Accounting for EVAT Output and EVAT Input The difference between Output Tax and Input Tax is “Value-Added Tax Payable”. This EVAT Payable will be remitted to the Bureau of Internal Revenue within 25 days after the end of each month. Example:  Assume that during the month of May, FM Trading made Sales of P 400,000 and Purchases of P 240,000. During the month of May, Output Tax is P 48,000 (P 400,000 x 12%) and Input Tax is P 28,800 (P240,000 x 12%). The difference between Output tax of P 48,000 and Input tax of P 28,800 is P 19,200. This P19,200 is the “Expanded Value-Added Tax Payable”.  At the end of May 31, the following entries should be made: Close the Input Tax to Output Tax account. Output Tax P48,000 EVAT Output Tax P 28,800 Input Tax P28,800 VAT Payable 19,200 VAT Input Tax P 28,800 VAT Payable P19,200 Cash in Bank P19,200 Close the Output tax account to EVAT Payable. EVAT Output Tax P 19,200 EVAT Payable P 19,200 Prepare remittances of EVAT Payable to the Bureau of Internal Revenue. EVAT Payable P 19,200 Cash in Bank P 19,200