Download Goods and Services Tax (GST)

Goods and services tax (GST)
Contents
Key to resources
2
Introduction
3
Accounting for GST
3
This learning guide is based on the following resource:
Textbook
Duncan A (2006) Introductory Accounting, National Core Accounting Publications, Bondi
Goods and services tax (GST)
© NSW DET 2006
2006/053/12/2006
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LRR 4664/4661/4668
Key to resources
Resource
Textbook
1
Chapter 4 ‘Recording Transactions’, section 4.6
2
Chapter 4, section 4.7
3
Chapter 4, self-testing exercise 1
4
Chapter 4, end of chapter exercises 11 and 17 (a)
2
Goods and services tax (GST)
© NSW DET 2006
2006/053/12/2006
LRR 4664/4661/4668
Introduction
Go to Resource 1
From 1 July 2000, goods and services tax legislation required businesses to
collect 10% tax of all goods and services provided by the business.
Accounting for GST
If the business pays GST when goods or services are purchased, the amount
is offset against the amount collected and the net figure is then paid
regularly to the Australian Taxation Office (ATO) by the business. Because
we collect on behalf of someone else (the ATO) and the money is not ours,
we record it in a liability account. It is a debt we must repay.
There are many ways of recording the GST in books of account. For
simplicity we will use only one account for GST. When GST is collected
from or charged to our customers we record it in the GST account on the
credit side because it is an increase to a liability. If the business purchases
goods or services then the GST account is reduced by the amount we paid.
This will be shown on the debit side of the GST account because the amount
we have to pay to the ATO is decreased. Any GST component of discounts
given or allowed will be handled by the accountant at the end of
each month.
Most source documents show GST separately. If you receive an invoice that
shows the total price, ie tax inclusive, the GST component can be calculated
by dividing the total amount by 11.
The legislation requires that all source documents show the seller’s
Australian business number (ABN), the words ‘Tax Invoice’ on invoices
and ‘Tax Adjustment’ on tax adjustment notes and indicate how the GST is
to be shown. In these learning materials we will assume that all
requirements of the legislation have been followed.
In accounting for GST, a single GST clearing account as a liability account
will be used. This is appropriate as in most cases the net effect of GST
transactions will be the amount the business has to pay to the ATO on its
business activity statement. The GST clearing account will cover both GST
collected (owing to the ATO) and GST paid (recoverable from the ATO).
If a cash receipt transaction has a GST component, that GST component
will be a liability in that it will have to be paid to the ATO.
Goods and services tax (GST)
© NSW DET 2006
2006/053/12/2006
3
LRR 4664/4661/4668
Example
General journal entry for a cash sale that includes GST:
Debit
Bank (asset increase)
550
Credit
Sales (income increase)
500
Credit
GST clearing (liability increase)
50
Cash sale $550 including GST
If a payment transaction has a GST component, that GST component will be
an asset but is accounted for as a reduction of a liability as the amount will
be recoverable from the ATO.
Example
General journal entry for an expense payment that includes GST:
Debit
Insurance (expense increase)
Debit
GST clearing (liability decrease)
Credit
350
35
Bank (asset decrease)
385
Insurance payment $385 including GST
Now go to Resource 2
Now go to Resource 3
Complete the self-testing exercise indicated.
Now go to Resource 4
Complete the exercises indicated.
4
Goods and services tax (GST)
© NSW DET 2006
2006/053/12/2006
LRR 4664/4661/4668