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?
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
Get help from others!
Recent Questions
Recent Answers
© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP