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How to pass accounting entries under GST?

Goods and service tax or GST will be one tax to subsume all taxes. It will bring in “One nation one tax” regime.

While there will be certain initial transition challenges, GST will bring in much clarity in many areas of business. One of the areas is accounting and bookkeeping. Read on to find out about accounting entries under GST.

Current scenario:

Separate accounts have to be maintained for excise, VAT, CST and service tax. Here’s a list of the few accounts currently any business has to maintain (apart from accounts like purchase, sales, stock) –

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  • Excise payable a/c (for manufacturers)
  • CENVAT credit a/c (for manufacturers)
  • Output VAT a/c
  • Input VAT a/c
  • Input Service tax a/c
  • Output Service tax a/c

For example, a trader Mr. X must maintain the minimum basic accounts –

  • Output VAT a/c
  • Input VAT a/c
  • CST A/c (for inter-state sales and purchases)
  • Service tax a/c [He will not be able to claim any service tax input credit as he is a trader with output VAT. Service tax cannot be setoff against VAT/ CST]

GST Regime

Under GST all these taxes (excise, VAT, service tax) will get subsumed into one account.
The same trader X has to then maintain the following a/cs (apart from accounts like purchase, sales, stock) –

  • Input CGST a/c
  • Output CGST a/c
  • Input SGST a/c
  • Output SGST a/c
  • Input IGST a/c
  • Output IGST a/c
  • Electronic Cash Ledger (to be maintained on Government GST portal to pay GST)

For a list of accounts to be maintained please read here.

While the number of accounts is more apparently, once you go through the accounting you will find it is much easier for record keeping. One of the biggest advantages X will have is that he can setoff his input tax on service with his output tax on sale.

Accounting entries under GST

How to pass accounting entries in GST

Let us consider a few basic business transactions (all amounts excluding GST)-

Example 1: Intra-state

  1. Mr. X purchased goods Rs. 1,00,000 locally (intrastate)
  2. He sold them for Rs. 1,50,000 in the same state
  3. He paid legal consultation fees Rs. 5,000
  4. He purchased furniture for his office for Rs. 12,000

Assuming CGST @8% and SGST@8%

The entries will be-

1

Purchase A/c ………………Dr.

1,00,000

 

Input CGST A/c ……………Dr.

    8,000

 

Input SGST A/c ………    …Dr.

    8,000

 

              To Creditors A/c

 

1,16,000

       

2

Debtors A/c ………………Dr.

1,74,000

 

             To Sales A/c

 

1,50,000

             To Output CGST A/c

 

12,000

             To Output SGST A/c

 

12,000

       

3

Legal fees A/c ………..……Dr.

5,000

 

Input CGST A/c ……………Dr.

400

 

Input SGST A/c ……………Dr.

400

 

             To Bank A/c

 

5,800

       

4

Furniture A/c ………..……Dr.

12,000

 

Input CGST A/c ……………Dr.

960

 

Input SGST A/c ……………Dr.

960

 

             To ABC Furniture Shop A/c

 

13,920


Total Input CGST=8,000+400+960= Rs. 9,360
Total Input SGST=8,000+400+960= Rs. 9,360
Total output CGST=12,000
Total output SGST=12,000
Therefore Net CGST payable=12,000-9,360=2,640
Net SGST payable=12,000-9,360=2,640

5

Output CGST A/c ……………Dr.

12,000

 

Output SGST A/c ……………Dr.

12,000

 

          To Input CGST A/c

 

9,360

            To Input SGST A/c

 

9,360

             To Electronic Cash Ledger A/c

 

5,280

 

Thus due to input tax credit, tax liability of Rs. 24,000 is reduced to only Rs.5,280. Also, GST on legal fees is also adjusted which was not possible in current tax regime.

If there had been any input tax credit left it would have been carried forward to the next year.

Example 2: Inter-state

  1. Mr. X purchased goods Rs. 1,50,000 from outside the State
  2. He sold Rs. 1,50,000 locally
  3. He sold Rs.1,00,000 outside the state
  4. He paid telephone bill Rs. 5,000
  5. He purchased an air cooler for his office for Rs. 12,000 (locally)

Assuming CGST @8% and SGST@8%

1

Purchase A/c ………………Dr.

1,50,000

 

Input IGST A/c ……………Dr.

24,000

 

           To Creditors A/c

 

1,74,000

       

2

Debtors A/c ………………Dr.

1,74,000

 

             To Sales A/c

 

1,50,000

             To Output CGST A/c

 

12,000

             To Output SGST A/c

 

12,000

       

3

Debtors A/c ………………Dr.

1,16,000

 

             To Sales A/c

 

1,00,000

             To Output IGST A/c

 

16,000

       

4

Telephone Expenses A/c ..…Dr.

5,000

 

Input CGST A/c ………………..Dr.

400

 

Input SGST A/c …..……………Dr.

400

 

             To Bank A/c

 

5,800

       

5

Office Equipment A/c.…..Dr.

12,000

 

Input CGST A/c ……………Dr.

960

 

Input SGST A/c ……………Dr.

960

 

             To ABC Furniture Shop A/c

 

13,920

 

Total CGST input =400+960=1,360


Total CGST output =12,000


Total SGST input =400+960=1,360


Total SGST output =12,000


Total IGST input =24,000 

          
Total IGST output =16,000

 

Particulars

CGST

SGST

IGST

Output liability

12,000

12,000

16,000

Less: Input tax credit

     

   CGST

1,360

   

   SGST

 

1,360

 

   IGST

8,000

 

16,000

Amount payable

2,640

10,640

NIL


Any IGST credit will first be applied to set off IGST and then CGST. Balance if any will be applied to setoff SGST.


So out of total input IGST of Rs. 24,000, firstly it will be completely setoff against IGST. Then balance Rs.8,000 against CGST.


From the total Rs.40,000, only Rs. 13,280 is payable.

So the setoff entries will be-

 

Setoff against CGST output

   

1

Output CGST ………………Dr.

9,360

 

           To Input CGST A/c

 

1,360

           To Input IGST A/c

 

8,000

     

2

Setoff against SGST output

   

Output SGST ………………Dr.

1,360

 

           To Input SGST A/c

 

1,360

     

3

Setoff against IGST output

   

Output IGST ………………Dr.

16,000

 

           To Input IGST A/c

 

16,000

     

4

Final payment

   

Output CGST A/c ……………Dr.

2,640

 

Output SGST A/c ……………Dr.

10,640

 

             To Electronic Cash Ledger A/c

 

13,280

     

 

GST impact on financials

Profit & Loss Account

Particulars

Rs.

Particulars

Rs.

Raw material consumption

XXX [Decrease]

Sales

XXX***

Purchases

XXX

   

Depreciation

XXX

   

Other Expenses

XXX

   

 

Reduction in raw material cost and other expenses
GST will mean seamless input credits for intrastate and interstate purchases of goods. This will mean reduction in cost of raw materials as input GST can be setoff against the output GST payable on sales. Also GST paid on many services like legal consultation, audit fees, engineering consultation etc. can be setoff against output GST. Currently input credit of service tax paid cannot be adjusted against output excise/VAT.

All this will effectively bring down the expenses.
***Impact on sales may vary depending on the industry and the GST rates.

Balance Sheet

Particulars

Rs.

Particulars

Rs.

Capital

XXX

Fixed assets

XXX [Decrease]

Current liabilities

XXX

Current assets

XXX

Tax payable

XXX

Credit receivable

XXX

Effective cost of fixed assets will come down as input credit will be available on both capital goods and services related to such goods like installation, inspection etc.
Tax payable and credit receivable will face changes too. There will be only three accounts under each of them- SGST, CGST, IGST instead of maintaining current excise payable, CENVAT credit, VAT payable, VAT credit, Service tax accounts.

Accounting principles
GAAP is applicable mandatorily on GST. So, all principles following revenue recognition etc. will be applicable.

Period of retention of accounts
Every registered taxable person must keep and maintain books of account for five years from the due date of filing of Annual Return for the relevant year.

 

Transition to GST will need to address various aspects of financial reporting systems for proper reporting. 
It is important that businesses plan to address changes arising out GST implementation in the best manner to reduce cost of transition and minimize business disruption.

  • Excise payable a/c (for manufacturers)
  • CENVAT credit a/c (for manufacturers)
  • Output VAT a/c
  • Input VAT a/c
  • Input Service tax a/c
  • Output Service tax a/c

For example, a trader Mr. X must maintain the minimum basic accounts –

  • Output VAT a/c
  • Input VAT a/c
  • CST A/c (for inter-state sales and purchases)
  • Service tax a/c [He will not be able to claim any service tax input credit as he is a trader with output VAT. Service tax cannot be setoff against VAT/ CST]

GST Regime

Under GST all these taxes (excise, VAT, service tax) will get subsumed into one account.
The same trader X has to then maintain the following a/cs (apart from accounts like purchase, sales, stock) –

  • Input CGST a/c
  • Output CGST a/c
  • Input SGST a/c
  • Output SGST a/c
  • Input IGST a/c
  • Output IGST a/c
  • Electronic Cash Ledger (to be maintained on Government GST portal to pay GST)

For a list of accounts to be maintained please read here.

While the number of accounts is more apparently, once you go through the accounting you will find it is much easier for record keeping. One of the biggest advantages X will have is that he can setoff his input tax on service with his output tax on sale.

Accounting entries under GST

How to pass accounting entries in GST

Let us consider a few basic business transactions (all amounts excluding GST)-

Example 1: Intra-state

  1. Mr. X purchased goods Rs. 1,00,000 locally (intrastate)
  2. He sold them for Rs. 1,50,000 in the same state
  3. He paid legal consultation fees Rs. 5,000
  4. He purchased furniture for his office for Rs. 12,000

Assuming CGST @8% and SGST@8%

The entries will be-

1

Purchase A/c ………………Dr.

1,00,000

 

Input CGST A/c ……………Dr.

    8,000

 

Input SGST A/c ………    …Dr.

    8,000

 

              To Creditors A/c

 

1,16,000

       

2

Debtors A/c ………………Dr.

1,74,000

 

             To Sales A/c

 

1,50,000

             To Output CGST A/c

 

12,000

             To Output SGST A/c

 

12,000

       

3

Legal fees A/c ………..……Dr.

5,000

 

Input CGST A/c ……………Dr.

400

 

Input SGST A/c ……………Dr.

400

 

             To Bank A/c

 

5,800

       

4

Furniture A/c ………..……Dr.

12,000

 

Input CGST A/c ……………Dr.

960

 

Input SGST A/c ……………Dr.

960

 

             To ABC Furniture Shop A/c

 

13,920


Total Input CGST=8,000+400+960= Rs. 9,360
Total Input SGST=8,000+400+960= Rs. 9,360
Total output CGST=12,000
Total output SGST=12,000
Therefore Net CGST payable=12,000-9,360=2,640
Net SGST payable=12,000-9,360=2,640

5

Output CGST A/c ……………Dr.

12,000

 

Output SGST A/c ……………Dr.

12,000

 

          To Input CGST A/c

 

9,360

            To Input SGST A/c

 

9,360

             To Electronic Cash Ledger A/c

 

5,280

 

Thus due to input tax credit, tax liability of Rs. 24,000 is reduced to only Rs.5,280. Also, GST on legal fees is also adjusted which was not possible in current tax regime.

If there had been any input tax credit left it would have been carried forward to the next year.

Example 2: Inter-state

  1. Mr. X purchased goods Rs. 1,50,000 from outside the State
  2. He sold Rs. 1,50,000 locally
  3. He sold Rs.1,00,000 outside the state
  4. He paid telephone bill Rs. 5,000
  5. He purchased an air cooler for his office for Rs. 12,000 (locally)

Assuming CGST @8% and SGST@8%

1

Purchase A/c ………………Dr.

1,50,000

 

Input IGST A/c ……………Dr.

24,000

 

           To Creditors A/c

 

1,74,000

       

2

Debtors A/c ………………Dr.

1,74,000

 

             To Sales A/c

 

1,50,000

             To Output CGST A/c

 

12,000

             To Output SGST A/c

 

12,000

       

3

Debtors A/c ………………Dr.

1,16,000

 

             To Sales A/c

 

1,00,000

             To Output IGST A/c

 

16,000

       

4

Telephone Expenses A/c ..…Dr.

5,000

 

Input CGST A/c ………………..Dr.

400

 

Input SGST A/c …..……………Dr.

400

 

             To Bank A/c

 

5,800

       

5

Office Equipment A/c.…..Dr.

12,000

 

Input CGST A/c ……………Dr.

960

 

Input SGST A/c ……………Dr.

960

 

             To ABC Furniture Shop A/c

 

13,920

 

Total CGST input =400+960=1,360


Total CGST output =12,000


Total SGST input =400+960=1,360


Total SGST output =12,000


Total IGST input =24,000 

          
Total IGST output =16,000

 

Particulars

CGST

SGST

IGST

Output liability

12,000

12,000

16,000

Less: Input tax credit

     

   CGST

1,360

   

   SGST

 

1,360

 

   IGST

8,000

 

16,000

Amount payable

2,640

10,640

NIL


Any IGST credit will first be applied to set off IGST and then CGST. Balance if any will be applied to setoff SGST.


So out of total input IGST of Rs. 24,000, firstly it will be completely setoff against IGST. Then balance Rs.8,000 against CGST.


From the total Rs.40,000, only Rs. 13,280 is payable.

So the setoff entries will be-

 

Setoff against CGST output

   

1

Output CGST ………………Dr.

9,360

 

           To Input CGST A/c

 

1,360

           To Input IGST A/c

 

8,000

     

2

Setoff against SGST output

   

Output SGST ………………Dr.

1,360

 

           To Input SGST A/c

 

1,360

     

3

Setoff against IGST output

   

Output IGST ………………Dr.

16,000

 

           To Input IGST A/c

 

16,000

     

4

Final payment

   

Output CGST A/c ……………Dr.

2,640

 

Output SGST A/c ……………Dr.

10,640

 

             To Electronic Cash Ledger A/c

 

13,280

     

 

GST impact on financials

Profit & Loss Account

Particulars

Rs.

Particulars

Rs.

Raw material consumption

XXX [Decrease]

Sales

XXX***

Purchases

XXX

   

Depreciation

XXX

   

Other Expenses

XXX

   

 

Reduction in raw material cost and other expenses
GST will mean seamless input credits for intrastate and interstate purchases of goods. This will mean reduction in cost of raw materials as input GST can be setoff against the output GST payable on sales. Also GST paid on many services like legal consultation, audit fees, engineering consultation etc. can be setoff against output GST. Currently input credit of service tax paid cannot be adjusted against output excise/VAT.

All this will effectively bring down the expenses.
***Impact on sales may vary depending on the industry and the GST rates.

Balance Sheet

Particulars

Rs.

Particulars

Rs.

Capital

XXX

Fixed assets

XXX [Decrease]

Current liabilities

XXX

Current assets

XXX

Tax payable

XXX

Credit receivable

XXX

Effective cost of fixed assets will come down as input credit will be available on both capital goods and services related to such goods like installation, inspection etc.
Tax payable and credit receivable will face changes too. There will be only three accounts under each of them- SGST, CGST, IGST instead of maintaining current excise payable, CENVAT credit, VAT payable, VAT credit, Service tax accounts.

Accounting principles
GAAP is applicable mandatorily on GST. So, all principles following revenue recognition etc. will be applicable.

Period of retention of accounts
Every registered taxable person must keep and maintain books of account for five years from the due date of filing of Annual Return for the relevant year.

Transition to GST will need to address various aspects of financial reporting systems for proper reporting. 
It is important that businesses plan to address changes arising out GST implementation in the best manner to reduce cost of transition and minimize business disruption.

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