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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 1 st July 2000. It is a 10% tax on the sale of goods or provision of services within Australia.

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Accounting for the GST

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  1. Accounting for the GST

  2. Lecture Outline • What is the GST. • Responsibilities of business in relation to the GST. • Accounting for the GST.

  3. 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.

  4. GST Exempt • The following items are exempt from GST: • Fresh Food • Educational Courses • Medical Services and Products • Wages and Salaries

  5. 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).

  6. 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).

  7. 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.

  8. 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.

  9. 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).

  10. 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

  11. 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.

  12. Cash Vs Accrual Method Cash System • Account for GST when cash is received or paid. Accrual Method • Account for GST when sale/purchase made OR when cash is received/paid Whichever occurs first.

  13. 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.

  14. 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. 5/5/04DebitCredit Cash 550 GST Collection (550/11) 50 Sales (550/1.1) 500

  15. 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 DebitCredit Accounts Receivable 550 GST Collection (550/11) 50 Sales (550/1.1) 500

  16. Accounting for GSTSale of Goods – Credit Sale Payment for the suit is made on 7th June. 7/6/04DebitCredit Cash 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.

  17. Accounting for GSTSales Returns • On the 8th May the customer returned the suit and received a full refund. 8/5/04 DebitCredit Sales Returns 500 GST Collection 50 Accounts Receivable 550

  18. Accounting for GSTSales Returns • The suit originally cost Chic Fashion $340. 8/5/04DebitCredit Inventory 340 Cost of Goods Sold 340

  19. Accounting for GSTDiscount Allowed • On the 10th April Chic Fashion sold a pair of shoes on credit for $165. 10/4/04DebitCredit Accounts Receivable 165 GST Collection (165/11) 15 Sales (165/1.1) 150

  20. Accounting for GSTDiscount Allowed • Payment for the shoes was made on the 2nd May. The customer was given a 20% discount. 2/5/04 DebitCredit Cash (80% of $165) 132 Discount Allowed (20% of $150) 30 GST Collection (20% of $15) 3 Accounts Receivable 165

  21. Accounting for GSTPurchase of Goods • Chic Fashion purchased a new cash register. The cost of the register was $2,035 (GST inclusive). 10/4/04DebitCredit Cash Register (2,035/1.1) 1,850 GST Outlay 185 Cash (165/1.1) 2,035

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