Accountancy/GST

GST may be set at 10% of GST applicable sales and business related purchases.

Some governments make certain goods and services GST-free in order to help disadvantaged tax payers, or people who can't work due to poor health, lack of education, poverty resulting in suboptimal personal development and further relative poverty. Examples include fresh vegetables , bread, milk , meat, infant formula, eggs, cooking oil , child care services, government funded medical services.

GST collections is a liability account to accrue GST on sales, and GST outlays is a current asset account to accrue GST on purchases

GST is an accrued current liability when a GST applicable sale, whether cash or credit ,is made. The creditor is the government taxation service. The liability account might be called GST collections. It is credited whenever cash in bank or accounts receivable is debited against a sale/revenue income account credit, and the total credits equals debits.

The moment a purchase is made, and an asset or expense is debited, a GST outlays current asset account is also debited; the total of the debits are made against the equivalent credit in cash in bank , or in accounts payable.

Sale and purchase returns are simply reversals. If cash was handed over which included GST, it is handed back and the relevant GST account reversed ( GST collections debited for sales returns, GST outlays credited for purchase returns ).

Discounts are like partial reversals : if 2% of the sales is the discount offered for meeting early payment terms, then the cash received as a debit to cash in bank is offset the discounted amount and one tenth of the discounted amount, the discount amount debited to the discount allowed finance expense account, and the one tenth discount amount debited against the GST collections liability account, reversing one tenth of 2% of the GST that was owed by the original sale. ( The rest of the credit is against accounts receivable as usual for accrual sale, or against revenue income account if direct cash sale).

In the allowance method for bad debts for accounts receivable, GST collections is reversed for the bad debt when the bad debt is realised i.e. when the accounts receivable is credited for the bad debt and the GST on the bad debt, and the bad debts allowance contra-asset account is debited ( some jurisdictions might call bad debts a probable liability account and hence a provision ).

Non-current asset acquisitions may be for a group of assets, and GST outlay is usually calculated on the net fair value of the assets given up, but may include deductions on asset value by acquired liabilities , as well. i.e. GST outlays debited 10% of ( fair value of acquired assets - fair value of acquired liabilities).