How to pass accounting entries under GST

Updated on Jun 09, 2017 - 08:41:39 PM

Goods and service tax or GST will be one tax to

subsume all taxes. It will bring in “One nation one tax” regime.

While there will be certain initial transition challenges, GST will bring in much clarity in many
areas of business. One of the areas is accounting and bookkeeping. Read on to find out about
accounting entries under GST.

Current scenario:

Separate accounts have to be maintained for excise, VAT, CST and service tax. Here’s a list of
the few accounts currently any business has to maintain (apart from accounts like purchase,
sales, stock) –

 Excise payable a/c (for manufacturers)

 CENVAT credit a/c (for manufacturers)
 Output VAT a/c
 Input VAT a/c
 Input Service tax a/c
 Output Service tax a/c

For example, a trader Mr. X must maintain the minimum basic accounts –

 Output VAT a/c

 Input VAT a/c
 CST A/c (for inter-state sales and purchases)
  Service tax a/c [He will not be able to claim any service tax input credit as he is a trader
with output VAT. Service tax cannot be setoff against VAT/ CST]

GST Regime

Under GST all these taxes (excise, VAT, service tax) will get subsumed into one account.
The same trader X has to then maintain the following a/cs (apart from accounts like purchase,
sales, stock) –

 Input CGST a/c

 Output CGST a/c
 Input SGST a/c
 Output SGST a/c
 Input IGST a/c
 Output IGST a/c
 Electronic Cash Ledger (to be maintained on Government GST portal to pay GST)

For a list of accounts to be maintained please read here.

While the number of accounts is more apparently, once you go through the accounting you will
find it is much easier for record keeping. One of the biggest advantages X will have is that he can
setoff his input tax on service with his output tax on sale.

Accounting entries under GST

How to pass accounting entries in GST

Let us consider a few basic business transactions (all amounts excluding GST)-

Example 1: Intra-state

1. Mr. X purchased goods Rs. 1,00,000 locally (intrastate)

2. He sold them for Rs. 1,50,000 in the same state
3. He paid legal consultation fees Rs. 5,000
 4. He purchased furniture for his office for Rs. 12,000

Assuming CGST @8% and SGST@8%

The entries will be-

Purchase A/c ………………Dr. 1,00,000

Input CGST A/c ……………Dr. 8,000
1
Input SGST A/c ……… …Dr. 8,000
To Creditors A/c 1,16,000

Debtors A/c ………………Dr. 1,74,000

To Sales A/c 1,50,000
2
To Output CGST A/c 12,000
To Output SGST A/c 12,000

Legal fees A/c ………..……Dr. 5,000

Input CGST A/c ……………Dr. 400
3
Input SGST A/c ……………Dr. 400
To Bank A/c 5,800

Furniture A/c ………..……Dr. 12,000

Input CGST A/c ……………Dr. 960
4
Input SGST A/c ……………Dr. 960
To ABC Furniture Shop A/c 13,920

Total Input CGST=8,000+400+960= Rs. 9,360

Total Input SGST=8,000+400+960= Rs. 9,360
Total output CGST=12,000
Total output SGST=12,000
Therefore Net CGST payable=12,000-9,360=2,640
Net SGST payable=12,000-9,360=2,640

Output CGST A/c ……………Dr. 12,000

Output SGST A/c ……………Dr. 12,000
5 To Input CGST A/c 9,360
To Input SGST A/c 9,360
To Electronic Cash Ledger A/c 5,280

Thus due to input tax credit, tax liability of Rs. 24,000 is reduced to only Rs.5,280. Also, GST on
legal fees is also adjusted which was not possible in current tax regime.
If there had been any input tax credit left it would have been carried forward to the next year.

Example 2: Inter-state

1. Mr. X purchased goods Rs. 1,50,000 from outside the State

2. He sold Rs. 1,50,000 locally
3. He sold Rs.1,00,000 outside the state
4. He paid telephone bill Rs. 5,000
5. He purchased an air cooler for his office for Rs. 12,000 (locally)

Assuming CGST @8% and SGST@8%

Purchase A/c ………………Dr. 1,50,000

1 Input IGST A/c ……………Dr. 24,000
To Creditors A/c 1,74,000

Debtors A/c ………………Dr. 1,74,000

To Sales A/c 1,50,000
2
To Output CGST A/c 12,000
To Output SGST A/c 12,000

Debtors A/c ………………Dr. 1,16,000

3 To Sales A/c 1,00,000
To Output IGST A/c 16,000

Telephone Expenses A/c ..…Dr. 5,000

Input CGST A/c ………………..Dr. 400
4
Input SGST A/c …..……………Dr. 400
To Bank A/c 5,800

Office Equipment A/c.…..Dr. 12,000

Input CGST A/c ……………Dr. 960
5
Input SGST A/c ……………Dr. 960
To ABC Furniture Shop A/c 13,920

Total CGST input =400+960=1,360

Total CGST output =12,000
Total SGST input =400+960=1,360
Total SGST output =12,000
Total IGST input =24,000
Total IGST output =16,000
Particulars CGST SGST IGST
Output liability 12,000 12,000 16,000
Less: Input tax credit
CGST 1,360
SGST 1,360
IGST 8,000 16,000
Amount payable 2,640 10,640 NIL

Any IGST credit will first be applied to set off IGST and then CGST. Balance if any will be
applied to setoff SGST.
So out of total input IGST of Rs. 24,000, firstly it will be completely setoff against IGST. Then
balance Rs.8,000 against CGST.
From the total Rs.40,000, only Rs. 13,280 is payable.
So the setoff entries will be-

Setoff against CGST output

Output CGST ………………Dr. 9,360
To Input CGST A/c 1,360
1
To Input IGST A/c 8,000

Setoff against SGST output

Output SGST ………………Dr. 1,360
2
To Input SGST A/c 1,360

Setoff against IGST output

Output IGST ………………Dr. 16,000
3
To Input IGST A/c 16,000

Final payment
Output CGST A/c ……………Dr. 2,640
4 Output SGST A/c ……………Dr. 10,640
To Electronic Cash Ledger A/c 13,280

GST impact on financials

Profit & Loss Account

Particulars Rs. Particulars Rs.

Raw material consumption XXX [Decrease] Sales XXX***
Purchases XXX
Depreciation XXX
Other Expenses XXX

Reduction in raw material cost and other expenses

GST will mean seamless input credits for intrastate and interstate purchases of goods. This will
mean reduction in cost of raw materials as input GST can be setoff against the output GST
payable on sales. Also GST paid on many services like legal consultation, audit fees, engineering
consultation etc. can be setoff against output GST. Currently input credit of service tax paid
cannot be adjusted against output excise/VAT.

All this will effectively bring down the expenses.

***Impact on sales may vary depending on the industry and the GST rates.

Balance Sheet

Particulars Rs. Particulars Rs.

Capital XXX Fixed assets XXX [Decrease]
Current liabilities XXX Current assets XXX
Tax payable XXX Credit receivable XXX

Effective cost of fixed assets will come down as input credit will be available on both capital
goods and services related to such goods like installation, inspection etc.
Tax payable and credit receivable will face changes too. There will be only three accounts under
each of them- SGST, CGST, IGST instead of maintaining current excise payable, CENVAT
credit, VAT payable, VAT credit, Service tax accounts.

Accounting principles
GAAP is applicable mandatorily on GST. So, all principles following revenue recognition etc.
will be applicable.

Period of retention of accounts

Every registered taxable person must keep and maintain books of account for five years from the
due date of filing of Annual Return for the relevant year.

Transition to GST will need to address various aspects of financial reporting systems for proper
reporting.
It is important that businesses plan to address changes arising out GST implementation in the
best manner to reduce cost of transition and minimize business disruption.