Accounting Entries Under GST

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We all know that GST is going to be effective from 1st July, 2017 i.e. 4 days from now and thus we need to be ready to start implementing the effects and changes under GST into our accounting records. Many of us have the question in mind that “How will we account for GST?” or “What will be the accounting entries under GST?” In this article we will see how the accounting entries will be passed for different transactions under GST.

Apart from the usual ledger accounts, an assessee under GST will have to open and maintain the following accounts in its accounting records:

For input tax:

Input IGST Account
Input CGST Account
Input SGST Account/ Input UTGST Account (Depending on whether he is located in a State or UT)

For output tax:

Output IGST Account
Output CGST Account
Output SGST Account/ Output UTGST Account (Depending on whether he is located in a State or UT)

In addition to the above, an Electronic Cash Ledger Account will also have to be maintained which will represent the Electronic Cash Ledger maintained at Government GST Portal to pay GST.

To understand the accounting entries let us see an illustration:

Illustration for Intra-State Transaction

Illustration 1: Intra State

A Trader had the following transactions:
1. Purchased goods worth Rs. 50,000/- from within his state (intra-state)
2. Paid transportation charges for bringing the goods to his warehouse Rs. 6,000/-
3. Sold the goods for Rs. 80,000/-
Assuming 18% GST i.e 9% CGST and 9% SGST, show what accounting entries under GST will be passed in the books of the trader.
Solution:
The Journal entries to be passed in the books of the trader would be:

1For Purchase of Goods (Intra-state)
Purchase Account  Dr. 50,000
Input CGST Account  Dr.    4,500
Input SGST Account  Dr.    4,500
   To Bank/Vendor Account 59,000
2For Transportation Charges
Transportation Charges Account   Dr    6,000
Input CGST Account  Dr.       540
Input SGST Account  Dr.       540
   To Bank/Vendor Account    7,080
3Sale of Goods
Bank/Customer Account  Dr. 94,400
   To Sales Account 80,000
   To Output CGST Account    7,200
   To Output SGST Account    7,200

Analysis of GST Paid and Collected:

Thus in this case net tax payable by the Trader would be as follows:

Net CGST Payable = Output CGST – Input CGST = 7,200 – 5,040 = 2,160.

Net SGST Payable = Output SGST – Input SGST = 7,200 – 5,040 = 2,160.

Therefore total payment to be made through the Electronic Cash Ledger would be Rs. 2,160 + 2,160 = 4,320.

Payment for GST would be through the Electronic Cash Ledger and the entry for the same would be:

Illustration for Inter-State Transaction

Now let us see an illustration related to inter-state transaction.The biggest advantage in this case is that the Trader got full input credit for tax paid on Transportation Charges (input service) which was not possible earlier.

Illustration 2: Inter-State

Following are the transactions of a Trader for a particular month:

  1. A Trader purchased goods Rs. 1,00,000 from outside the State
  2. He sold Rs. 80,000 locally
  3. He sold Rs. 60,000 outside the state
  4. He paid some expenses of Rs. 5,000
  5. He purchased a furniture for his office for Rs. 10,000 from his state.

Assuming 18% GST i.e 9% CGST and 9% SGST, show what accounting entries under GST will be passed in the books of the trader.

Solution:

1For Purchase of Goods (Inter-state)
Purchase Account  Dr. 1,00,000
Input IGST Account   Dr.     18,000
   To Bank/Vendor Account 1,18,000
2For Intra-State Sales
Bank/Customer Account  Dr.     94,400
   To Sales Account     80,000
   To Output CGST Account       7,200
   To Output SGST Account       7,200
3For Inter-State Sales
Bank/Customer Account  Dr.     70,800
   To Sales Account     60,000
   To Output IGST Account     10,800
4Payment of Expenses
Expense Account     Dr.       5,000
Input CGST Account   Dr. 450
Input SGST Account    Dr. 450
   To Bank/Vendor Account       5,900
5Purchase of Asset Intra State
Asset Account     Dr.     10,000
Input CGST Account   Dr.           900
Input SGST Account    Dr.           900
   To Bank/Vendor Account     11,800
Analysis of GST Paid and collected Rs. Rs. Rs.
CGSTSGSTIGST
Output Taxes
For Intra State Sales  7,200   7,200
For Inter State Sales       10,800
Less: Input Taxes
For Inter State Purchase       18,000
For Payment of Expenses     450       450
For Purchase of Asset (Intra State)           900           900
Total Tax Payable 5,850 5,850     -7,200

Here you can see that there is an excess Input Tax Credit for IGST by Rs. 7,200. This excess credit will be used to set off any liability to pay tax under CGST first and if there is still any excess credit left after setting off CGST then it will be used to set off tax payable under SGST.

So in the instant case, the excess credit of IGST Rs. 7200 will first set off the CGST payable by Rs 5,850 and the balance (i.e. Rs. 7,200-5,850=1350) will be utilised to set off SGST payable. So finally SGST Payable would be Rs. 5850-1350 = Rs. 4,500.

The entries would be as follows:

1Set off of IGST Input against IGST Output
Output IGST A/c Dr. 10,800
To Input IGST Account 10,800
2Set off of CGST Input & IGST Input against CGST Output
Output CGST A/c Dr. 7,200
To Input CGST Account 1,350
To Input IGST Account 5,850
3Set off of SGST Input & Balance IGST Input against SGST Output
Output SGST A/c Dr. 2,700
To Input SGST Account 1,350
To Input IGST Account 1,350
4Payment of SGST which could not be set-off
Output SGST A/c Dr. 4,500
To Electronic Cash Ledger Account 4,500

So that was all about accounting under GST. Hope that the article was helpful. Happy Reading.

 

 

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