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