Accounting Entries Under GST

 

The introduction of GST has subsumed all the indirect taxes which has led to the “One Nation, One Tax” regime.

However, with the implementation of GST, there are certain challenges that will be faced by many areas of business. One of the many areas of focus is accounting and bookkeeping.

 

  • Scenario before the implementation of GST:

 

Before implementation of GST separate accounts are required to be maintained for excise, VAT, CST and service tax. Apart from accounts like sales, purchases, and stock, the following accounts are separately required to be maintained:

 

  1. Excise Payable (for the manufacturer)
  2. CENVAT Credit (for the manufacturer)
  3. Output Vat A/c
  4. Input Vat A/c
  5. Output Service Tax
  6. Input Service Tax
  7. CST A/c for interstate purchases and sales
  8. Service Tax A/c

 

  • Scenario after implementation of GST:

 

Under GST all the above taxes are subsumed into one tax. Thus following accounts are required to maintain in addition to purchases, sales, and stock:

 

  1. Input CGST a/c
  2. Output CGST a/c
  3. Input SGST a/c
  4. Output SGST a/c
  5. Input IGST a/c
  6. Output IGST a/c
  7. Electronic Cash Ledger (to be maintained on Government GST portal to pay GST)

 

While the number of accounts to be maintained are more but through accounting and record keeping you will find it easier to maintain the books of accounts and comply with GST provisions.

 

  • Accounting entries under GST:

 

Let us consider a few business transactions

1) Intra State Purchases

  1. Mr. X purchased goods worth Rs. 1,00,000/-.
  2. He sold them for Rs.1,50,000/-
  3. Professional fees Rs.5000/-
  4. He also purchased furniture worth Rs. 12000/-
  5. Assuming CGST @ 8% and SGST @ 8%
The entry will be
a) Purchases a/c                      Dr 1,00,000
Input CGST a/c                    Dr     8,000
Input SGST a/c                    Dr     8,000
       To Creditors 1,16,000
b) Debtors a/c                          Dr 1,74,000
         To Sales 1,50,000
         To Output CGST    12,000
          To Output SGST    12,000
c) Professional Fees a/c           Dr 5,000
Input CGST                           Dr  400
Input SGST                           Dr  400
          To Bank 5,800
d) Furniture a/c                          Dr 12,000
Input CGST                           Dr     960
Input SGST                           Dr     960
      To ABC Furniture 13,920
Total Input CGST: 8000+400+960 = Rs. 9360

Total Input SGST: 8000+400+960 = Rs. 9360

Total Output CGST: Rs.12000

Total Output SGST: Rs. 12000

Therefore, Net CGST Payable = 12000-9360 = 2640

Net SGST Payable = 12000-9360 = 2640

e) Output CGST                        Dr 12,000
Output SGST                        Dr 12,000
       To Input CGST 9,360
       To Input SGST 9,360
       To Electronic Cash Ledger 5,280

 

Thus the liability is reduced to Rs. 5280 due to the input tax credit available on the purchases made. Also, note if there is any input tax credit left it will be carried over to next month or quarter or year as the case may be.

 

2) Inter-State Purchases

  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 has purchased air cooler for Rs. 12,000 within the state
  6. Assume CGST @ 8% and SGST @ 8%
a) Purchases a/c             Dr 1,50,000
Input IGST                   Dr   24,000
     To Creditors 1,74,000
b) Debtors a/c                   Dr 1,74,000
       To Sales 1,50,000
       To Output CGST   12,000
       To Output SGST    12,000
c) Debtors a/c                 Dr 1,16,000
       To Sales 1,00,000
        To Output IGST   16,000
d) Telephone Exp             Dr 5,000
Input CGST                  Dr   400
Input SGST                  Dr   400
     To Bank 5,800
e) Office Equipment         Dr 12,000
Input CGST                  Dr     960
Input SGST                  Dr     960
      To ABC Furniture 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 =16,000The Output IGST of Rs.16000 shall be set off against Input IGST of Rs. 24000 and balance 8000 can be set off against CGST

The Output CGST of Rs. 12000 can be set off against input CGST of Rs.1360 and against input IGST of Rs. 8000 and balance Rs. 2640 will be payable.

The Output SGST of Rs. 12000 can be set off against input SGST of Rs. 1360 and balance amount of Rs. 10640 will be payable

e) Setoff Entry
OutputCGST                 Dr 9,360
        To Input CGST 1,360
        To Input IGST 8,000
Output SGST               Dr 1,360
        To Input SGST 1,360
Output IGST                 Dr 16,000
      To Input IGST 16,000
Output CGST               Dr 2,640
Output SGST               Dr 10,640
To Electronic Cash Ledger 13.280

 

Impact of GST entries on the Financials:

 

Overview of 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:

 

  1. GST will mean seamless input credits for intrastate and interstate purchases of goods. This will reduce the cost of raw materials as input GST will be set off against the output GST payable on sales.

 

  1. Also, GST paid on many services like legal consultation, audit fees, engineering consultation, etc. can be set off against output GST. However, input credit of service tax paid cannot be adjusted against output excise/VAT.
    As this setoff will affect and reduce the expenses. Also, the Impact on sales may vary depending on the industry and the GST rates.

 

Overview of the Balance Sheet:

 

Particulars Rs. Particulars Rs.
Capital XXX Fixed assets XXX [Decrease]
Current liabilities XXX Current assets XXX
Tax payable XXX Credit receivable XXX

 

  1. The price (Cost Price) 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.

 

  1. 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 is required to maintain its books of account for five years from the due date of filing of Annual Return for the relevant year.

 

Thus the transition to GST required to address various aspects of financial reporting systems for proper reporting. It is very important for the business to plan and address changes arising out GST implementation in the best manner to reduce the cost of transition and minimize business disruption.

 

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