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 Outlay
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
GST Outlay 1,200
GST Refund

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 GST Sale of Goods – Cash Sale
Chic Fashion sold a $550 (GST inclusive) suit on the 5th May Payment was made in cash.
5/5/04 Debit Credit
Cash
GST Collection (550/11)
Sales (550/1.1)

15. 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 Debit Credit
Accounts Receivable 550
GST Collection (550/11)
Sales (550/1.1)

16. Accounting for GST Sale of Goods – Credit Sale
Payment for the suit is made on 7th June.
7/6/04 Debit Credit
Cash
Accounts Receivable
Chic fashion receive $550 cash from the sale but will have to forward $50 (ie the GST component) to the ATO.

17. Accounting for GST Sales Returns
On the 8th May the customer returned the suit and received a full refund.
8/5/ Debit Credit
Sales Returns 500
GST Collection
Accounts Receivable

18. Accounting for GST Sales Returns
The suit originally cost Chic Fashion $340.
8/5/04 Debit Credit
Inventory 340
Cost of Goods Sold

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

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

21. 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 Debit Credit
Cash Register (2,035/1.1) 1,850
GST Outlay
Cash (165/1.1) ,035