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Business Tax Tip – How to understand GST Accounts on Balance Sheet

images/Business Tax Tips.PNGA client was reconciling the GST accounts: Collected & Paid amounts on the Balance Sheet and GST reports, and wanted to know -

    1. The end of year Balance Sheet shows a different amount to the GST Accrual (& Cash) reports.  Why?            
    2. They thought that the GST Liabilities section of the Balance Sheet gets automatically updated when you enter a Spend Money purchase or raise a Sales invoice.  Is this the case?
    3. Or do we have a classification issue in our MYOB account set ups that we need to fix?

The answer is - The amounts in the GST accounts should reflect the way the transactions are created, and depend on whether cash recording (cheques and deposits or cash receipt sales) or accrual recording is used (invoice sales and purchases or bills).

Cash transactions recognise revenue sales and expenses when actual CASH is received and paid, ie when paid. The GST accounts will have the exact GST amount for each transaction, as and when paid or received.

Accrual transactions recognise revenue sales and expenses when the TRANSACTION occurs, or the raised date, not when paid. The GST accounts will have the GST from the invoice or purchase.

When reporting tax amounts for a period, keep in mind the way transactions are entered, as the GST on sales and the GST on purchases will not be picked up, if not paid, when reporting on Cash basis. If they were paid, they would appear in the report.

Always check on screen the GST detail reports to see what transactions are picked up for the period, and after checking, if ok, PRINT to keep a record, then print the GST/Tax summary report.

The balance in the tax accounts also change, when we post the amount reported & paid to the ATO, reducing/increasing the account to reflect what is reported and paid (or refunded if it applies). So a tax payment during the period reported also changes the Balance Sheet amount. Look through the detail of the transactions in the tax accounts, and see what has occurred.

See also Cash and Accrual – will there be Debtors (Accounts Receivable – AR) and Creditors (Accounts Payable – AP)?

And for a quick summary of the reports suggested to check and use to prepare a BAS, go to MYOB – Aust. BAS Checks Reports & Entries

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia
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