Check out this blog to learn how entries in accounting under GST are recorded and how to purchase entry with GST should be mentioned in the accounting journal. Also, learn the process of calculating net payable/receivable GST.
Goods and Services Tax (GST) is a value-added tax applied to goods and services. It replaces several indirect tax laws which were in force earlier. Implemented in July 2017, it still poses problems for the common person to understand or grasp fully. In this article, we will discuss the details of GST entries, journal entries in accounting under GST, and GST input and output accounts. Also, help you understand through examples how to purchase entry with GST is recorded in the accounting journal.
Goods and Services Tax Accounts
Under GST, the taxpayer needs to maintain the below-given accounts
- CGST A/c
CGST Account is divided into Output CGST and Input CGST.
- SGST A/c
SGST account is divided into Output SGST and Input SGST.
- IGST A / C
IGST account is divided into Output IGST and Input IGST.
- e-Cash Ledger/ Electronic money ledger
The taxpayer maintains the book on the portal GST to pay GST
Records to be Maintained Under Gst
- Production of goods
- Supply of goods and services (inward and outward)
- Payable output tax and tax already paid
Period for Retention of Accounts Under GST
According to the GST Act, every taxpayer registered under it should maintain the books of accounts and records for a minimum of 72 months (6 years). The period is calculated from the last date of filing the Annual return for the relevant year. The last date to file an annual return is 31st December of the following year.
Accounting Inputs Under GST
To understand it better, let us take the example of a business transaction. GST in account too will be discussed in this context.
Calculate the GST amount that needs to be paid before registering for GST using our GST calculator.
- Ms. Shubha purchased goods worth ₹1 lakh from the market locally
- She sold the goods for ₹3 lakh in the same region
- The consultation fee of ₹500 was paid by her through a bank account
- As Ms. Shubha was thinking about expanding her business, she bought furniture worth about ₹10,000
Taking CGST at 8% and SGST at 8% GST Accounting entries:
The accounting Journal entries with GST will be as follows:
|Sl. No.||Details||Debit (₹)||Credit (₹)|
|1||Purchase A/c Dr||1,00,000|
|CGST Input Dr||8,000|
|SGST Input Dr||8,000|
To Creditors A/c
(Being purchase entry with GST)
|2||Debtors A/c Dr||3,48,000|
|To Sales A/c||3,00,000|
|To Output CGST A/c||24,000|
To Output SGST A/c
(Being sales made to customer and entry with GST recorded)
|3||Consultation fee A/c Dr||500|
|CGST Input Dr||40|
|Input SGST Dr||40|
To Bank A/c
(Being consultation done and charges paid through bank)
|4||Furniture A/c Dr||10,000|
|CGST Input A/c Dr||800|
|SGST Input A/c Dr||800|
To XYZ Furniture A/c
(Being furniture purchased)
By recording the GST Entry in Tally we get,
Total Input CGST = ₹8000 + ₹40 + ₹800 = ₹8,840
Total Input SGST = ₹8000 + ₹40 + ₹800 = ₹8,840
Total output CGST = ₹24,000
Total output SGST= ₹24,000
the NET CGST to be paid = ₹24,000 – ₹8,840 = ₹15,160
the NET SGST to be paid = ₹24,000 – ₹8,840 = ₹15,160
Impact of GST on Financial Statements
Let us now look at the impact of GST on the final statement and the profit and loss statement:
Profit and loss statement
|Details||Price (₹)||Details||Price (₹)|
You will notice there is a decrease in the cost of raw materials, purchases, and other related costs since the businessman can now avail of ITC on these expenses when filing the GST return.
|Assets||Amount (₹)||Liabilities||Amount (₹)|
|Current Liabilities||XXXX||Current Assets||XXXX|
|Tax Payable||XXXX||Bill Receivable||XXXX|
|Bills Payable||XXXX||Credit Receivable||XXXX|
Under the accounting for GST journal entries, the cost of fixed assets will decrease as the businessman can avail of ITC (Input Tax Credit) on fixed assets.
Prerequisite for Keeping Records and Accounts Under GST Calculations
The Central Government has put in place draft rules for GST records and accounts. It contains an additional list pertaining to GST accounting and maintenance of records. Under this, it is imperative that the books of accounts be available at the storage facility while the goods are stored there. Details of shipment, delivery, receipts, and disposal of goods should also be available. The transporter of goods too should keep a record of the goods delivered or stored for delivery. Under the new GST rules, all records should be maintained at the places where the business transactions are done. If electronically maintained, the records should be ready to be displayed as and when required. If the profits of the taxpayer exceed the prescribed limit, he needs to get an audit done.
Records to be Maintained by Business Owners Registered Under GST
- Detail of all the goods manufactured by the taxpayer/ businessman
- The details of purchases made. The purchase entry with GST should be recorded. Purchase details, including the name and address of the supplier
- Details of all the sales made by the taxpayer. The record should also include the name and address of the buyer
- Inventory/stock value should be calculated accurately. It should be the current value of the asset in the list of the taxpayer
- Input tax credit- the amount of income tax collected when purchasing capital assets
- the detailed record of the export tax on the sale of finished goods and services
- The GST paid input tax/ cash
- Any other record if instructed by the provisions of law
- Goods and services exported and imported during the relevant period
- GST receivable journal entry book must be maintained
- GST payable journal entry book must be maintained
We hope this article has been helpful in acquainting you with purchase entry with GST. It has been over five years since GST was implemented in India, but the common person is still not well acquainted and perplexed with the new GST provisions. Through this article, we strive to remove the difficulties faced by taxpayers while dealing with GST issues. The books of accounts must be accurately maintained to avoid any consequences in the future.