accounting for the gst

Accounting for the GST

Lecture Outline

What is the GST.

Responsibilities of business in relation to the GST.

Accounting for the GST.

GST

The Goods and Services Tax (GST) was introduced on 1st July 2000.

It is a 10% tax on the sale of goods or provision of services within Australia.

GST Exempt

The following items are exempt from GST:Fresh FoodEducational CoursesMedical Services and ProductsWages and Salaries

GST Inclusive

All goods and services must be shown GST inclusive (ie the price must include the GST).

To determine the amount of GST paid, simply divide the amount by 11. A student buys a desktop computer for $2,200.

The GST paid on the computer is $200 ($2,200/11).

Responsibility of Business

A business with a turnover greater than $50,000: Must obtain an Australian Business

Number (ABN).By law, has a responsibility to collect and

pay GST to the Australian Taxation Office (ATO).

Must submit a Business Activity Statement (BAS).

GST Obligations

GST Collected GST is collected from customers when selling a

good or providing a service. This amount must be paid to the ATO within three

months. Classified as a current liability.

GST Outlay GST is paid when acquiring a good or receiving a

service. Classified as a current asset.

Input Credit

GST Payable

GST collected must be paid to the ATO. However the amount payable can be reduced by the amount of the GST Outlay

The GST Outlay therefore acts as a credit, reducing the amount of GST that a business must pass on to the ATO.

GST Payable

GST Collections 14,000

GST Outlay 8,000

GST payable to the ATO 6,000

The business needs to pay only $6,000 to the ATO (ie $14,000 less the $8,000 credit).

GST Refund

If GST Outlay > GST Collections

ATO will refund the difference to the business.

GST Collections 900

GST Outlay 1,200

GST Refund 300

Responsibility of Business

A business with a turnover less than $50,000: Does not have to obtain an ABN.Cannot add GST to the price of its own

goods or services. Must pay GST on goods & services but cannot

claim input credit.

Cash Vs Accrual Method

Cash SystemAccount for GST when cash is received or paid.

Accrual MethodAccount for GST

when sale/purchase made OR

when cash is received/paidWhichever occurs first.

Cash Vs Accrual Method

Revenue less than $1,000,000

Use either cash or accrual method.

Revenue greater than $1,000,000

Use accrual method

This course will use the accrual method.

Accounting for GSTSale of Goods – Cash Sale

Chic Fashion sold a $550 (GST inclusive) suit on the 5th May 2004. Payment was made in cash.

5/5/04 Debit Credit

Cash 550

GST Collection (550/11) 50

Sales (550/1.1) 500

Accounting for GSTSale of Goods – Credit Sale

Chic Fashion sold a $550 (GST inclusive) suit on the 5th May 2004 on credit.

5/5/04 Debit Credit

Accounts Receivable 550

GST Collection (550/11) 50

Sales (550/1.1) 500

Accounting for GSTSale of Goods – Credit Sale

Payment for the suit is made on 7th June.

7/6/04 Debit CreditCash 550 Accounts Receivable 550

Chic fashion receive $550 cash from the sale but will have to forward $50 (ie the GST component) to the ATO.

Accounting for GSTSales Returns

On the 8th May the customer returned the suit and received a full refund.

8/5/04 Debit Credit

Sales Returns 500

GST Collection 50

Accounts Receivable 550

Accounting for GSTSales Returns

The suit originally cost Chic Fashion $340.

8/5/04 Debit Credit

Inventory 340

Cost of Goods Sold 340

Accounting for GSTDiscount Allowed

On the 10th April Chic Fashion sold a pair of shoes on credit for $165.

10/4/04 Debit Credit

Accounts Receivable 165

GST Collection (165/11) 15

Sales (165/1.1) 150

Accounting for GSTDiscount Allowed

Payment for the shoes was made on the 2nd May. The customer was given a 20% discount.

2/5/04 Debit CreditCash (80% of $165) 132Discount Allowed (20% of $150) 30 GST Collection (20% of $15) 3

Accounts Receivable 165

Accounting for GSTPurchase of Goods

Chic Fashion purchased a new cash register. The cost of the register was $2,035 (GST inclusive).

10/4/04 Debit Credit

Cash Register (2,035/1.1) 1,850

GST Outlay 185

Cash (165/1.1) 2,035