GST- PAYG - TAX – Super – Provisions PDF

Preview

Summary

This will answer: Which accounts in the financial statements are GST inclusive and GST exclusive, likewise for other taxes like Income ...

Description

GST- PAYG - TAX – SUPER – PROVISIONS From /Desktop/Jessie/Accounting …decision making/ http://www.macmillan.com.au/secondary/onix/0/7c187c9831fb56d0ca2571a300158e02/$file/fobch 5_gst.pdf

GST Example: Find GST from invoice: usually ‘GST inclusive’ then divide invoice total by 1.1 ie. Invoice 165 / 1.1 = 150 subtract165 GST =165-150= 15 It is important to distinguish between the terms ‘GST inclusive’ and ‘GST exclusive’, because the calculation of the GST component will vary accordingly. In this chapter, GST will be recorded in a GST account, and this account is a liability as it represents the amount of GST owed to the government if you sell, but an asset account if you buy, When a business pays for goods and services it purchases, it has to pay out the total cost including GST. However, as long as a business has kept correct records, it can reclaim from the government the amount of GST it has had to pay to run its business. This then reduces the GST liability. When the business makes sales of its goods or services, it must collect GST. This is a liability as this amount is paid to the government. GST is only involved in transactions that are based on the buying and selling of goods and services. If the transaction does NOT involve buying or selling, GST is NOT included. GST is also NOT included in financial transactions (e.g. transactions with a bank) and some food items (generally fresh food). The following is a list of transactions that will be included in this chapter that do NOT include GST: • capital contributions by the owner (cash and other assets) • drawings by the owner (cash only) • interest paid on a loan • interest received from a bank • a loan from a bank • a loan to another party • payment of wages to employees. . (There is no GST in wages.) Something to remember is that GST only involves sales and purchases of goods and services and that when a sale is concerned, GST is always credited because the liability is increasing. When purchases are made, GST is always debited because the liability is decreasing. We will use this table format to show how the following transactions are analysed: • contributions of cash or other assets by the owner (NO GST)

• withdrawals of cash by the owner (NO GST) • purchases of assets for cash (GST) • purchases of assets on credit (GST) • sales of assets (other than inventories) for cash (GST) • sales of assets (other than inventories) on credit (GST) • sales of inventories for cash (GST) • sales of inventories on credit (GST) • sales of services for cash (GST) • sales of services on credit (GST) • return of inventories purchased for cash (GST) • return of inventories purchased on credit (GST) • return of inventories sold for cash (GST) • return of inventories sold on credit (GST) • cash paid to accounts payable (NOT a sale or a purchase—NO GST) • purchase of supplies and services for cash (GST) • purchase of supplies and services on credit (GST) • cash received from accounts receivable (NOT a sale or a purchase—NO GST) • other cash received (may involve GST e.g. commission or may NOT involve GST, e.g. interest (There is no GST in paying or receiving Interest.). PRICES Petra’s Paraphernalia, the business we’ve been using as an example in this book, is a trading enterprise, that is, Petra buys goods and resells them at a higher price. The price Petra buys goods for is called the cost price. When she sells the goods, they are sold at a different price, the selling price, which is the cost price plus a mark-up and with GST added on as well. ✦Cost price includes the cost of the goods bought and any costs of getting the goods ready for sale. ✦Selling price is the price for which the business sells the product(s) and GST is added to this price. ✦Mark-up is an amount added to the cost price to work out the selling price before GST is added most times is a percentage of cost. Therefore, when a sale of inventories occurs, a business makes two distinct entries in the records of the business—a selling price entry to cash(with GST) and a cost price entry to COGS(no GST). Likewise when goods are bought;

CASH FROM ACC.PAYABLE AND FROM ACC.RECEIVABLE Accounts payable and accounts receivable includes the GST, although the GST part was already recorded separately when the transactions were entered into these accounts. When the customer settles account receivable that is, pays the business the full amount owing or part of the amount owing, the Accounts receivable (asset) decreases and therefore is credited (see [5.22]). GST is not included in this transaction as it has already been recorded at the time of the sale. At the same time the Bank account will increase and therefore be debited. CASH DISCOUNT FOR EARLY PAYMENT Because the original sale to the accounts receivable included GST, if discount is now given it really means that the amount charged for the goods has decreased. This also means that the GST we originally recorded must also decrease. It is generally easier to do this transaction in two parts to make it more simple. The first part of the entry deals with the cash actually paid. The second part deals with the amount of cash not paid—the discount that has a GST component.

INCOME TAX ON SALARIES Wages and salaries INCLUDE employees income tax although the tax is kept in a separate account to be paid with the Business Activity Statement BAS,in a separate account. Ex: Generally if recording a payroll transaction (say gross 1000, less payg 200, , net 800) by journal you might Dr Wages Payable1000, Cr PAYG Withholding Payable 200 and Cr Cash for the 800 you gave the employee. When you eventually pay the PAYG liability to the ATO, you would Dr PAYG Withholding Payable 200 and CR Cash 200

ACCOUNTING FOR COMPANY INCOME TAX Take a small family owned Company for example. 

Teller Morrow Pty Limited operates an automotive repair shop;



In the 2017 financial year, it is expected to have net profit of $50,000.00;



Assume first year so there have been no Income Tax Instalments paid in advance;



The Company Tax Rate is 28.5% and thus the projected tax payable will be $14,250.00 We account for this by the following end of year journal entries: Debit Income Tax Expense $14,250.00 on Income statement Credit Income Tax Payable $14,250.00 on Balance sheet When tax paid, we do the following: Debit Income Tax Payable $14,250.00 on Balance sheet Credit Bank Account $14,250.00 on Balance sheet (Cash)

Assume successive years so that income tax instalments of say $15,000.00 have been paid in advance we account for the expected refund by doing the following journal: Debit Income Tax Expense $14,250.00 Credit Income Tax Payable $14,250.00 When the refund is received by the company, we do the following: Debit Income Tax Payable $14,250.00 Debit Bank Account $750.00 Credit Provision for Income Tax $15,000.00 Now let’s look at a Sole Trader / Individual’s treatment. 

Bobby Munson operates a small Ice Cream Shop called Samcro Sweets;



In the 2017 financial year, it is expected to have net profit of $50,000.00;



Bobby also has a rental property that has made a $10,000.00 loss;



He made $6,000.00 in interest on his bank accounts;



He has a share portfolio that generated franked dividends totalling $3,000.00;



He worked part time for his friend Nero and made a salary of $15,000.00 and had PAYG tax withheld of $2,000.00 How do we account for this? Well as a sole trader, Bobby needs to include all these elements in his personal tax return. A sole trader’s income tax is calculated based on the lot, not just the business.

PROVISIONS Provisions for long service leave and other provisions are kept in separate accounts, like Provision for Bad Debt. See income tax profit vs. accounting profit, they are different

SUPER Paid superannuation will show as an expense on the Income Statement...