Elements of Accountancy · Ch 3 — Introduction to Goods and Services Tax
Accounting for GST — Recording Purchases, Sales, Set-Off and Payment
Accounting for GST — Recording Purchases, Sales, Set-Off and Payment
Once GST is understood conceptually, the accounting treatment follows a fairly mechanical pattern. A GSHSEB commerce GST question always asks the same underlying thing: split every purchase and sale invoice into its basic value and its tax components, and keep input tax and output tax in separate ledger accounts so they can be set off correctly at the end of the period.
Ledger accounts used. A business normally opens separate accounts for each type of input and output tax:
| Account | Nature | Purpose |
|---|---|---|
| Input CGST A/c | Asset (debit balance) | GST paid on intra-state purchases — central component |
| Input SGST A/c | Asset (debit balance) | GST paid on intra-state purchases — state component |
| Input IGST A/c | Asset (debit balance) | GST paid on inter-state purchases |
| Output CGST A/c | Liability (credit balance) | GST collected on intra-state sales — central component |
| Output SGST A/c | Liability (credit balance) | GST collected on intra-state sales — state component |
| Output IGST A/c | Liability (credit balance) | GST collected on inter-state sales |
Recording a purchase (intra-state, on which GST is paid):
Purchases A/c Dr.
Input CGST A/c Dr.
Input SGST A/c Dr.
To Cash/Bank/Creditor A/c
(Being goods purchased and GST paid thereon)
Recording a sale (intra-state, on which GST is collected):
Cash/Bank/Debtor A/c Dr.
To Sales A/c
To Output CGST A/c
To Output SGST A/c
(Being goods sold and GST collected thereon)
An inter-state purchase or sale follows exactly the same pattern, except that a single Input IGST A/c or Output IGST A/c is debited or credited instead of the CGST/SGST pair.
Set-off at the end of the period. At the end of the tax period, the balances in the Input tax accounts are transferred against the balances in the corresponding Output tax accounts:
Output CGST A/c Dr.
Output SGST A/c Dr.
To Input CGST A/c
To Input SGST A/c
(Being input tax credit set off against output tax liability)
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