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 Food
 Educational Courses
 Medical Services and Products
 Wages 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
GST Outlay
GST Refund
900
1,200
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 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 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
Chic Fashion sold a $550 (GST inclusive) suit
on the 5th May 2004. Payment was made in
cash.
5/5/04
Cash
GST Collection (550/11)
Sales (550/1.1)
Debit
550
Credit
50
500
Accounting for GST
Sale of Goods – Credit Sale
Chic Fashion sold a $550 (GST
inclusive) suit on the 5th May 2004 on
credit.
5/5/04
Accounts Receivable
GST Collection (550/11)
Sales (550/1.1)
Debit
550
Credit
50
500
Accounting for GST
Sale of Goods – Credit Sale
Payment for the suit is made on 7th June.
7/6/04
Debit
Cash
550
Accounts Receivable
Credit
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
On the 8th May the customer returned the suit
and received a full refund.
8/5/04
Sales Returns
GST Collection
Accounts Receivable
Debit
500
50
Credit
550
Accounting for GST
Sales Returns
The suit originally cost Chic Fashion
$340.
8/5/04
Inventory
Cost of Goods Sold
Debit
340
Credit
340
Accounting for GST
Discount Allowed
On the 10th April Chic Fashion sold a pair of
shoes on credit for $165.
10/4/04
Accounts Receivable
GST Collection (165/11)
Sales (165/1.1)
Debit
165
Credit
15
150
Accounting for GST
Discount Allowed
Payment for the shoes was made on the 2nd
May. The customer was given a 20%
discount.
2/5/04
Debit
Cash (80% of $165)
132
Discount Allowed (20% of $150) 30
GST Collection (20% of $15)
3
Accounts Receivable
Credit
165
Accounting for GST
Purchase of Goods
Chic Fashion purchased a new cash register.
The cost of the register was $2,035 (GST
inclusive).
10/4/04
Cash Register (2,035/1.1)
GST Outlay
Cash (165/1.1)
Debit
1,850
185
Credit
2,035