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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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Presentation Transcript
lecture outline
Lecture Outline
  • What is the GST.
  • Responsibilities of business in relation to the GST.
  • Accounting for the GST.
slide3
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
GST Exempt
  • The following items are exempt from GST:
    • Fresh Food
    • Educational Courses
    • Medical Services and Products
    • Wages and Salaries
gst inclusive
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
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 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
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 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
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 business1
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 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.

cash vs accrual method1
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 gst sale of goods cash sale
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

accounting for gst sale of goods credit sale
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

accounting for gst sale of goods credit sale1
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.
accounting for gst sales returns
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

accounting for gst sales returns1
Accounting for GSTSales Returns
  • The suit originally cost Chic Fashion $340.

8/5/04DebitCredit

Inventory 340

Cost of Goods Sold 340

accounting for gst discount allowed
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

accounting for gst discount allowed1
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

accounting for gst purchase of goods
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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