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How does GST Paid and GST Collected accounts work?

Handling GST records is mandatory for most businesses in Australia and making sure you keep good GST records is a very smart move for any Australian micro business. In this short article we want to have a look at how the GST records work within Nominal.

First there are two major scenarios you either sell goods and services and add GST to the price which means you 'Collect GST' and the 2nd is where you purchase of spend money on goods or services which means you 'Pay GST'

To record these two types of transactions Nominal has two default Liability accounts called 'GSTCollected' and 'GSTPaid' that are used by Nominal to record the GST amounts.

So let's start with an example, we spend $1000 on computer part which includes GST. The record is:
  • GSTPaid debit 90.91
  • Computer debit 909.09
  • Cheque account credit 1000

If we look at our balance sheet we will see the GSTPaid is at -90.91.

Adding another computer expense of 2000 will have a similar affect, this time the GST is on top of the price:
  • GSTPaid debit 200
  • Computer debit 2000
  • Cheque account debit 2200

Looking at our balance sheet now we can see GSTPaid at -290.91 and Cheque Account -3200.

The opposite is a simple Receive Money account (this is for selling goods/services), when done without credit (for credit sales/purchases we use the invoice/purchase) but for the GST example we want to keep it simple and use the Spend/Receive records.

So now we receive 3300 including GST for a Sale we made:
  • GSTCollected credit 300
  • Sales credit 3000
  • Cheque Account debit 3300
The balance sheet now holds:
  • GSTCollected 300
  • GSTPaid  -290.91
  • Cheque Account  100

Assuming the amounts you spent on GST are reduced from the amounts you collected for GST (check with your accountant or the ATO publications to learn about your GST obligations), then we actually 'owe' the ATO $9.09 which should be paid on the appropriate BAS report/schedule.

So to record this transaction we can use the Spend money record and select the GSTCollected as the account:
  • GSTCollected debit 9.09
  • Cheque account credit 9.09
The balance sheet was updated and now contains:
  • GSTCollected 290.91
  • GSTPaid -290.91
 want to balance these two accounts in order to get them back to zero, for this we can use a 'general ledger' record which is a way to debit/credit any two accounts. (and is the basis for all other records in the double entry bookkeeping system)

We create a GL record by going to the Books tab and clicking 'Enter Record'
  • GSTPaid credit 290.91
  • GSTCollected debit 290.91
The balance sheet is now back to GST Collected and GST Paid at 0 for both.


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