Accounting for the gst
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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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Accounting for the gst

Accounting for the GST


Lecture outline

Lecture Outline

  • What is the GST.

  • Responsibilities of business in relation to the GST.

  • Accounting for 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

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 Collections14,000

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 Outlay1,200

    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.

    5/5/04DebitCredit

    Accounts Receivable550

    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

Cash550

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.

    8/5/04DebitCredit

    Sales Returns500

    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

    Inventory340

    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 Receivable165

    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.

    2/5/04DebitCredit

    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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