TransWikia.com

Tracking GST/VAT from invoice to payment

Personal Finance & Money Asked by Emilio Reed on August 23, 2021

Contrived example: Alice and Bob both work for Charlie, who runs a lawnmowing service. Charlie bills $100 plus 10% GST/VAT for the job. If Alice does the job, she gets $50 – if Bob does the job, he gets the $50. At the end of the month, the GST has to be remitted to the government agency. How does Charlie track the GST?

Charlie happens to be using ledger (https://www.ledger-cli.org/) but this question is about double-entry accounting, not the software.

Let’s just say that Charlie is better at mowing lawns than accounting… but he’s always willing to learn 🙂

2019-01-01 invoice customer for Alice's work
    ; the customer is billed, and the total amount (GST included) is
    ; posted to Accounts Receivable.  Note there is no GST liability
    ; until the customer pays the bill.
    Assets:Accounts Receivable                110.00
    Income:Alice                             -110.00

2019-01-02 customer pays invoice
    ; the outstanding figure in Accounts Receivable is cleared to the
    ; bank account.  We now have a GST liability - but how do we
    ; properly account for this?
    Assets:Bank Account                       110.00
    Assets:Accounts Receivable               -110.00
    Liabilities:GST:Collected                 -10.00
    HELP PLEASE                                10.00

2019-01-03 pay Alice
    ; Alice gets paid - not complicated, that's an expense.
    Expenses:Salary                            50.00
    Assets:Bank Account                       -50.00

2019-02-01 remit GST
    ; the GST liability is cleared
    Assets:Bank Account                       -10.00
    Liabilities:GST:Collected                  10.00

Here are our balance sheets after each transaction:

After first transaction (customer invoiced):

         110  Assets:Accounts Receivable
        -110  Income:Alice

After second transaction (customer paid):

         110  Assets:Bank Account
          10  HELP PLEASE
        -110  Income:Alice
         -10  Liabilities:GST:Collected

After third transaction (Alice paid):

          60  Assets:Bank Account
          50  Expenses:Salary
          10  HELP PLEASE
        -110  Income:Alice
         -10  Liabilities:GST:Collected

After fourth/final transaction (GST remitted):

          50  Assets:Bank Account
          50  Expenses:Salary
          10  HELP PLEASE
        -110  Income:Alice

The first question pertains to the obviously named account “HELP PLEASE”.

There is an additional (albeit intrinsically related) question: how do we track how much GST was paid? When we pay GST, does this count as an Expense?

One Answer

EDIT

The $110 that you asked the customer to pay was always intended to be $100 in payment for the lawnmowing services, and $10 collected on behalf of the taxman.

I would suggest that the transactions on 2019-01-01 should be:

   Assets:Accounts Receivable                110.00
   Income:Alice                             -100.00
   Liabilities:GST:Collected                 -10.00

And when the customer pays:

    Assets:Bank Account                       110.00
    Assets:Accounts Receivable               -110.00

This process shows a GST liability somewhat earlier than the date when you have a formal obligation to pay GST to the Tax Office - but it has the advantage that the correct amount for the taxable service ($100) is shown on both your customer's invoice and in your books.

I'm not an accountant or a financial adviser, but I know that it would undesirable if the taxman had any reason to believe that GST should be paid on $110. That would result in a tax liability that has to be paid partly out of your pocket

Answered by Greg Schmidt on August 23, 2021

Add your own answers!

Ask a Question

Get help from others!

© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP