GST Terminology

Question 1

ABN

Answer 1

The Australian Business Number (ABN) is a number that businesses must use so that the Australian Taxation Office (ATO) can identify them in all their dealings. If a business does not register for an ABN, then other entities might withhold tax from payments to the business at the highest marginal tax rate. The business will only be able to claim this money back when the owner lodges an annual income tax

Question 2

BAS

Answer 2

Business activity statement:
ABN is also GST registration number. Being registered for the GST means that the business has to lodge a Business Activity Statement (BAS) with the ATO. A business can choose to lodge its BAS monthly/quarterly/annually.

Question 3

Why is GST recorded?

Answer 3

If a business is registered for the GST and it keeps accurate records of all its purchases, then the GST component of the purchase prices paid can be claimed back from the government. GST paid reduced the amount of any GST liability owed to the government.

Question 4

GST inclusive

Answer 4

A price that includes GST.

Question 5

GST exclusive

Answer 5

A price that does not include GST.

Question 6

What percent of GST is charged on most g/s?

Answer 6

10%

Question 7

How to calc GST and object component if GST inclusive?

Answer 7

GST inclusive amount/11
= GST Component

GST inclusive amount - GST component
= GST PAID

Question 8

How to calc GST in exclusive?

Answer 8

GST Exclusive /10
= GST amount/owing

GST TO PAY
= GST amount + Object comp

Question 9

What transactions are affected by GST?

Answer 9

Only involved in buying and selling of goods and services. If no purchase/sale of g/s then no GST.

• Cash and credit purchases/sales
• Purchase returns
• Sales returns
• Discounts
• Purchase ad sale of non-current assets
• The owner withdrawing inventory

Question 10

3 Types of GST supplies (sales):

Answer 10

• Taxable Supplies
• Input-taxed supplies
• GST free supplies

Question 11

Taxable supplies (Sales)

Answer 11

If a business is registered for the GST, it must charge GST on taxable supplies and will also then be entitled to input tax credits on the GST it has paid on purchases to make those supplies.

GST IS CHARGED…GST credits can be claimed…

Question 12

GST-free supplies

Answer 12

GST is not charged… Is not payable to ATO…GST credits can be claimed…

• Cars for use by disabled people
• Child Care
• Charities
• Education
• Exports of goods and services
• International travel/mail
• Water
• Religious service
• Health services
• Food

Question 13

Input-taxed supplies

Answer 13

Are sales of goods and services that don’t include GST in the price. The most common input taxed supplies are financial supplies and selling or renting out residential premises. The GST is not charge and on input taxed supplies and input tax credits cannot be claimed.

Question 14

Name the inventory recording Systems:

Answer 14

• Perpetual Inventory System
• Periodic Inventory System

Question 15

Perpetual Inventory System:

Answer 15

-Allows greater control over inventory
-Recognised as best
Keeps an exact record of the numbers of items of each product that the business has on hand at any one time.

Question 16

Periodic Inventory System:

Answer 16

Updates the ending inventory balance in the general ledger when a physical inventory count is conducted.
-Do not require continuous updating of inventory balances after each transaction.
-Simpler System

Question 17

Features of the perpetual system:

Answer 17

1. Keeps exact record of the number of items of each product that the business has.
2. Due to instant update of inventory, customers can be informed about the exact inventory availability.
3. Chances of running out of inventory are low. This is because once supplies run out, they can reorder almost instantly due to ongoing monitoring.
4. Stocktake under this system to check for inventory loss through theft or spoilage

Question 18

Advantages of perpetual:

Answer 18

• Running low on inventory is low.
• Fast and slow moving inventory lines can be easily identified.
• Short Term income statements can be prepared

Question 19

Disadvantages of Perpetual:

Answer 19

• More expensive than the periodic inventory system.

Question 20

Purchase of inventory (Cash) Posting:

Answer 20

Inventory
GST credits received (Asset)
Cash at Bank
Purchased inventory with cash

Question 21

Purchase of inventory (Credit) Posting:

Answer 21

Inventory
GST credits received (Liability)
Creditor
Purchase inventory on credit

Question 22

Purchase Returns Posting (Credit)

Answer 22

Creditor
GST Credits Received (Liab)
Inventory
Returned inventory originally purchased on credit

Question 23

Purchase Returns Posting (Cash)

Answer 23

Cash at bank
GST Credits Received (Ass)
Inventory
Returned inventory originally purchased for cash

Question 24

Credits sales posting:

Answer 24

Debtor
GST Collected (Liab)
Sales
Sold GST-inclusive/exclusive inventories

Then,
Cost of sales. xx
Inventory. xx
Cost of sale

Question 25

Cash sales Posting

Answer 25

Cash at bank
GST Collected
Sales
Sold GST-Inclusive/exclusive inventories

Then,
Cost of sale. xx
Inventory. xx
Cost of sale

Question 26

Sales returns and allowances posting: (REVERSE OF CREDITS SALES POSTING)

Answer 26

Sales Returns
GST collected
Debtor
Debtor returned GST-inclusive/exclusive goods

Reversal:
Inventory
Cost of sale
Reversal of cost of sale to Debtor due to sales return

Question 27

Expenses are cr or dr? and why?

Answer 27

Are Debited as they decrease equity.

Question 28

Incomes are cr or dr? and why?

Answer 28

Are Credited as they increase equity.

Question 29

Discount Received posting

Answer 29

Debtors
GST Credits Received
Discount Recieved
Cash at Bank
Paid account and received an x discount

Question 30

Discount Allowed Posting: (Reverse of Discount Rec)

Answer 30

Cash at bank
Discount received
GST collected
Debtor
Received payment and allowed a discount