ALDRIDGE STATE HIGH SCHOOL
11 ACCOUNTING
CORE STUDIES ONE - TRANSACTIONS WITH GST
GOODS AND SERVICES TAX
Since 1 July 2000, the goods and services tax (GST) has applied to
the sale and purchase of most goods and services consumed in
Australia. This tax is a consumption tax. It is a tax paid when
goods/services are consumed by consumers. Some goods are GST free, however, the
majority of goods and services have 10% tax applicable. The goods and services tax
(GST) is a broad-based tax of 10% on the supply of most goods and services consumed in
Australia. It is designed to be collected by enterprises but eventually paid by consumers.
With GST to be included in a transaction, goods with a sales value of $1000 would be
invoiced to the purchaser or consumer at a price of $1100, with $100 being the GST
collected by the enterprise to pass on to the government. The GST is always calculated as
one-tenth of the value, or one-eleventh of the price.
Input tax credits are amounts claimed back from the government for the GST paid on
acquisitions used by a GST registered business. For a business to claim an input tax
credit they must have the tax invoice.
Exercise 1
If you are a consumer who purchases goods or services that are GST-taxable, how much
tax will you pay on goods or services for which you paid:
a) $77
b) $1100
c) $6886
Exercise 2
If you are a supplier who supplies goods or services that are GST-taxable, how much tax
will you charge on goods or services with a value of:
a) $70
b) $77
c) $1100
d) $6886
The tax invoices and adjustment notes will provide the information necessary to record
details of the GST. The two basic GST accounts used are:


GST Collected which is a liability for a business. It records the GST that is
collected on sales and supplies, and is payable to the ATO. The account is
sometimes called a GST Payable account.
GST Credits Received which is a negative liability for a business because it
reduces the amount owing to the ATO. It records the input tax credits claimed
on purchases or acquisitions. This account is sometimes called an Input Tax
Credit Receivable account or GST Paid on Inputs account.
Let’s look now at some of the possible transactions that you may encounter and how to
deal with the GST.
1
OPENING ENTRY
The opening entry is not made at the beginning of every accounting period but only to open
a set of books, for example, when the owner starts a new business or takes over an
existing business. The opening entry is unlikely to include GST elements.
Eg. N Jones commenced a business called Jones Industries, with a capital of
$18550, which consisted of the following assets and liabilities: Cash at Bank $9000,
Accounts Receivable: Baker Enterprises $1100, Garrison and Sons $800; Furniture
$1250, Motor Vehicle $7000, Accounts Payable: Brown and Sons $600
This entry would be recorded as follows:
DATE
Mar 1
General Journal of Jones Industries
PARTICULARS
F
DR
Cash at Bank
DR
9000
Baker Enterprises
DR
1100
Garrison and Sons
DR
800
Furniture
DR
1250
Motor Vehicle
DR
7000
Brown and Sons
CR
Capital
CR
(Owner commenced business with assets
CR
600
18550
and liabilities)
Exercise 3
Prepare an opening general journal for the following:
On September 1 V Vincent commenced a new business called Vincent Enterprises, with
the following assets and liabilities: Cash at Bank $19000, Accounts Receivable: Baker Pty
Ltd $2200, Jackson and Sons $1600, Inventories $4000, Motor Vehicles $27000, Accounts
Payable: Brown and Company $6600.
ACCOUNTING FOR SERVICE ENTITIES
PURCHASING CONSUMABLE SUPPLIES
Most businesses that wish to provide a service need some supplies to
assist. For eg, an electrician needs a supply of wires and switches, an
accountant needs pens and paper. Most of these supplies are written off as
expenses as soon as they are purchased. Consider the following:
March 2 Purchased consumable supplies for $220 cash, GST-inclusive, cheque 87.
This would be recorded as follows:
DATE
March 2
General Journal
PARTICULARS
F
Consumable Supplies Expense
GST Credits Received
Cash at Bank
(Purchased supplies, cheque 87)
DR
DR
CR
DR
CR
200
20
220
2
SELLING SERVICES
A service provider will charge a fee for their service, eg.
Mar 3 Charged fees for services provided to J Brown for $550 GST-inclusive, as per
tax invoice 1001.
DATE
March 3
General Journal
PARTICULARS
J Brown
DR
GST Collected
CR
Service fees revenue
CR
F
DR
CR
550
50
500
(Charged fee for service, invoice no 1001)
PAYING EXPENSES
Some expenses will not incur GST eg. Wages, Salaries and Bank
Charges. Telephone expense is one that will incur GST. Most
expenses incur GST. Eg.
Mar 4
DATE
March 4
Paid Telephone expenses of $264 as per cheque 8702
General Journal
PARTICULARS
Telephone Expenses
DR
GST Credits Received
DR
Cash at Bank
CR
F
DR
CR
240
24
264
(Paid telephone, chq 8702)
ACCOUNTING FOR TRADING ENTITIES
PURCHASES OF INVENTORIES
Purchases of inventories, for most businesses, is one transaction that will include GST. Eg
March 4 Jones Industries purchased goods from Cronder Wholesalers for $770
including GST, on tax invoice 901.
DATE
March 4
General Journal
PARTICULARS
Inventories
DR
GST Credits Received
DR
Cronder Wholesalers
CR
F
DR
CR
700
70
770
(Purchased goods, inv 901)
If the purchase of inventories had been for cash, the only change to the above entry would
have been to credit Cash at Bank account, instead of the accounts payable.
3
PURCHASES RETURNS AND ALLOWANCES
Eg. March 5 Returned goods to Cronder Wholesalers, receiving adjustment note 18
for $220, including GST.
DATE
March 5
General Journal
PARTICULARS
F
Cronder Wholesalers
DR
GST Credits Received
CR
Inventories
CR
DR
CR
220
20
200
(Purchases returns, adj note 18)
If the purchases had been returned for a cash refund, the only change would have been to
debit Cash at Bank to show the cash received. If goods had been exchanged or replaced
generally no entry would be made.
Exercises: page 82, 3.19
SALES OF INVENTORIES
Under the Perpetual inventory system, sales of inventories have two
separate elements in the transaction.
 the revenue or selling price element
 the expense or cost price element
Therefore, two separate entries must be made to record a sale. Eg.
March 7
Jones Industries sold goods to K Ryan on tax invoice 101 for $600 with
10% GST to be added. The cost price of these goods was $420.
DATE
March 7
General Journal
PARTICULARS
F
K Ryan
DR
GST Collected
CR
Sales
CR
DR
660
CR
60
600
(Sold goods, tax inv 101)
If the sale of inventories had been made for cash, the only change would have been to
debit bank account, not the accounts receivable.
To record the cost price element of the transaction, the following entry would be as
made:
DATE
March 7
General Journal
PARTICULARS
F
Cost of Goods Sold
DR
Inventories
CR
DR
420
CR
420
(Cost of goods sold, inv 101)
4
SALES RETURNS AND ALLOWANCES
Sales returns consist of two parts and involve a GST adjustment. Eg
March 8 K Ryan returned goods, recorded on tax adjustment note 11 for a total
amount of $110, including GST. The cost price of these goods was $70.
DATE
March 8
General Journal
PARTICULARS
F
Sales returns
DR
GST Collected
DR
M Jones
CR
DR
100
10
CR
110
(M Jones returned goods, tax adjustment note 11)
To record the cost price element of the transaction would be:
DATE
March 8
General Journal
PARTICULARS
F
Inventories
DR
Cost of goods sold
CR
DR
CR
70
70
(Cost of goods returned, tax adjustment note 11)
Exercises: page 84, 3.20, illustrative example, page 86, 3.22, 3.23
PURCHASE OF ASSETS OTHER THAN INVENTORIES
Eg March 9 Jones Industries purchased equipment on credit for $33000 (inclusive
of GST) from Equipment Suppliers, as shown on tax invoice 5672.
DATE
March 9
General Journal
PARTICULARS
F
Equipment
GST Credits Received
Equipment Suppliers
DR
DR
CR
DR
30000
3000
(Purchased equipment on credit, inv 5672)
CR
33000
If the equipment had been purchased for cash, the only change to the above entry would
be to credit bank account rather than the accounts payable, Equipment Suppliers.
HOMEWORK ACTIVITY
Record the following entries in the General Journal of Maxwell Smart. Post to the
ledger and prepare a trial balance as at 28 February 2013.
Feb 3 Purchased goods from Siegfried Ltd for $2 750 including GST, tax inv 103.
4 Received adjustment note 45 from Siegfried Ltd for $77, GST inclusive, for goods returned by
us.
7 Sold goods on credit for $1 320 including GST, to James Watt, tax inv 67, cost price of $600.
8 Purchased GST free goods for cash $660, cheque 88
12 Sent adjustment note 37 for $44 including GST to James Watt for goods returned with a cost
price of $20. These goods were originally sold on Feb 7.
15 Sold goods with a cost price of $250 for $550 GST free, cash register summary.
21 Paid Siegfried Ltd $2 673, cheque 89.
28 Paid electricity account of $132 GST inclusive, using cheque 90.
5
SALE OF ASSETS OTHER THAN INVENTORIES
Eg March 10 Jones Industries sold furniture on credit to Furniture Traders Ltd for its
book value of $1000. The sale attracted GST, as shown on tax invoice 102
DATE
March 10
General Journal
PARTICULARS
Furniture Traders Ltd
GST Collected
Furniture
(sold furniture on credit, inv 102)
F
DR
1100
DR
CR
CR
CR
100
1000
If the furniture had been sold for cash, the only change would be to debit bank instead of
the accounts receivable.
DRAWINGS OF CASH
The owner of a business may withdraw cash from the business for
personal use. Eg
March 11 N Jones, the owner of Jones Industries, withdrew $200 for
personal use, using cheque 8703.
DATE
Mar 11
General Journal
PARTICULARS
F
Drawings
DR
Cash at Bank
CR
(Owner took cash for own use, cheque 8703)
DR
200
CR
200
DRAWINGS OF INVENTORIES
If inventories are withdrawn for personal use, an adjustment to GST is required if the
inventories are ones for which an input tax credit has already been received. Eg
March 12 The owner of Jones Industries withdrew GST-inclusive inventories worth
$132 for personal use.
DATE
March
12
General Journal
PARTICULARS
Drawings
GST Credits Received
Inventories
(owner took goods for own use)
DR
CR
CR
F
DR
CR
132
12
120
Exercises: page 90, 3.24
6
CORRECTION OF ERRORS
Occasionally errors may be made in the records. It is preferable that these errors be
corrected through the general journal. Each error would be treated individually, looking
carefully at what accounts need to be increased or decreased. Eg
March 10 Jones had erroneously entered the sale of furniture to the sales account
for $1000 instead of the furniture account. The error was discovered when the
accounts were balanced on 31 March.
DATE
March
31
General Journal
PARTICULARS
Sales
Furniture
DR
CR
F
DR
CR
1000
1000
(Correction of error in entry made on March 10)
Exercises: page 92, 3.25, page 94, illustrative example, page 98-99, 3.28 – 3.29
REVISION (Page 101-102, exercise 3.33)
Journalise the following transactions for M Pale trading as Pale Industries, post to the
ledger and take out a trial balance as at 30 April 2013.
Apr 1 M Pale commenced business with the following account balances: Cash in Hand $100,
Cash at Bank $400, Accounts Receivable: T Blake $50, L Gibson $110, Inventories $900,
Vehicle $3 000, Equipment $5 000, Buildings $11 000, Land $11 000, Accounts Payable:
B Racey $500, G Wall, $100, Loan from Bank $2 000.
2 Sold goods with a cost price of $150 to T Blake for $220 cash (GST-inclusive), receipt 48.
Purchased goods from B Racey $330, (GST-inclusive), tax invoice 101.
Paid $500 off the loan from bank, cheque 272.
Cash sales $110 (GST-inclusive) of goods with $70 cost price, cash register summary.
3 Owner withdrew goods $44 (GST-inclusive), inter-office memorandum 5.
4 Sold vehicle for $3 300 cash including GST, receipt 49.
Purchased goods from G Wall $200 (GST-free), tax invoice 202.
Cash sales $150 (GST-free) of goods with $90 cost price, cash register summary.
5 Received $50 cash from T Blake, receipt 50.
6 Paid B Racey $500 in settlement of amount owing on 1 April, cheque 273.
Sold goods with a cost price of $60 to L Gibson, tax invoice 59, for $110 (GST-inclusive).
7 Purchased inventories from G Wall $110 (including GST of $8), invoice 707.
8 Returned goods to the value of $55 (GST-inclusive) to G Wall, adjustment note 51.
10 Cash sales $1 100 (GST-inclusive) of goods with $700 cost price, cash register summary.
Paid $50 interest on loan, cheque 274.
17 Received adjustment note 52 for GST-free goods returned to G Wall, $5.
19 L Gibson returned inventories to the value of $11 (GST-inclusive) with a cost price of $6,
adjustment note 97.
20 Cash sales $80 (GST-free) of goods with $40 cost price, cash register summary.
Received $100 from L Gibson, receipt 51.
23 Bought land for $3 000 (plus GST) from ABC Finance Co, paying, $1 000 deposit as per
receipt and tax invoice 606.
25 Sold inventories with a cost price of $40 to T Blake for $66 (GST-inclusive), tax invoice 60.
27 Purchased GST-free inventories for cash $100, cheque 275.
Paid stationery $110 (GST-inclusive), cheque 276.
30 Inter-office memo 6 issued to change stationery recorded on 27th to correct account of travel
expenses.
7
Page 98, Exercise 3.28
From the following information for the business of A Storey, retailer, prepare
General Journal entries, post these to the ledger and prepare a trial balance as at 30
September.
Sept 1 A Storey commenced business with assets of furniture $5 000 and cash at bank of
$30 000.
4 Paid rent $2 090, cheque 001.
10 Purchased GST-free inventories for $1 200 from Wholesale Food Ltd, tax invoice 247.
13 Cash sales of GST-free goods with a cost price of $500 for $850, cash register summary.
Sold furniture for $5 500 (GST inclusive) to Furniture Seconds Ltd, tax invoice 301.
15 Purchased inventories for $5 280 (GST-inclusive) from Wholesale Food Ltd,
tax invoice 255.
17 Returned inventories valued at $550 (GST-inclusive) to Wholesale Food Ltd, adjustment
note 75.
18 Paid wages $1 330, cheque 002.
19 Cash sales of goods with cost price of $2 000 for $3 300 GST-free, cash register
summary.
21 Sold GST-inclusive inventories with cost price of $500 for $880 to N Nash,
tax invoice 302.
26 Received $880 from N Nash, receipt 801.
27 Purchased advertising from Mail Newspapers $418, tax invoice 993.
28 Sold inventories with cost price of $300 for $594 (GST-inclusive) to P Peters,
tax invoice 303.
29 Sent adjustment note 501 for $176 to P Peters, who returned taxable goods with a cost
price of $100.
30 Owner withdrew $500 cash for personal use, cheque 003.
8
Page 99, Exercise 3.29
From the following information for the business of B Garronne, prepare General
Journal entries, post these to the ledger and prepare a trial balance as at 31 May.
May 1 B Garronne commenced business with a deposit to the business’s bank account of
$25 000, receipt 801.
8 Paid rent $550, cheque 401.
Purchased GST-free inventories for $1 210, cheque 402.
14 Performed services for $880 cash (GST-inclusive), receipt 802.
16 Purchased furniture for $1 452 (GST-inclusive) from Harvey Jones Ltd, tax invoice 388.
17 Purchased inventories for $528 (GST-inclusive) from T Terry, tax invoice 556.
20 Returned inventories valued at $55 (GST-inclusive) to T Terry, adjustment note 775.
21 Paid advertising $330, cheque 403.
22 Cash sales of goods with cost price of $200 for $330 GST-free, cash register summary.
Sold GST-inclusive inventories with cost price of $300 for $440 to N Brown,
tax invoice 763.
24 Received $440 from N Brown, receipt 803.
29 Paid wages $1 209, cheque 404.
30 Sold inventories with cost price of $100 for $198 (GST-inclusive) to P Donald,
tax invoice 764.
Sent adjustment note 111 for $88 to P Donald, who returned taxable goods with a cost
price of $60.
31 Owner withdrew GST-inclusive inventories for personal use, $440, inter-office memo 05.
Paid bank charges $20, as per bank statement.
COMPUTERISED ACCOUNTING TIPS
 Ensure you use the business name, not the owner’s name to name your journal, ledger
and trial balance.
 Ensure each page of your ledger has column headings included: In Excel, go through
File, Page Set Up, Sheet, Rows to repeat at the top.
 Ruling and presentation is to be consistent throughout each exercise.
9