CHAPTER 2 Source documents

and goods and services tax

Learning outcome
To understand the different types of source
documents and the operation of the goods and
services tax

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-1
KEY TERMS
• Australian Business Number
• Business Activity Statement
• Goods and services tax
• GST clearing
• GST-free supplies
• GST input tax credits

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-2
KEY TERMS cont.
• GST collected
• Inventories
• Instalment Activity Statement
• Pay-as-you-go withholding tax
• Source documents
• Tax invoice

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-3
SOURCE DOCUMENTS
Source documents that generate accounting entries
– Sales invoices
– Receipts/Cash register tape
– Purchase invoices
– Cheques
– Adjustment notes
– Memoranda
– Electronic transfers

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-4
SOURCE DOCUMENTS cont.
Documents that back up (substantiate) accounting entries
– Sales and purchase orders
– Delivery dockets
– Bank deposit books
– Petty cash dockets
– Account statements

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-5
GST
• Tax on goods and services consumed in
Australia
• Buyer/Consumer (non- business) bears cost
of GST
• Businesses act as collecting agents for ATO

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-6
GST cont.
• GST-registered businesses entitled to input tax
credits
• GST not applied to employees’ wages
• GST applied to contractor payments

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-7
REGISTRATION
• If annual turnover is $75 000 or more, businesses are required to
register for:
– an ABN
– GST

• Businesses not registered for GST do not charge GST and cannot
claim input tax credits
• Businesses without an ABN may have 48.5% tax deducted from
payment for goods and services they provide

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Bookkeeping:Principles
Principlesby
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AAT andbyDavid
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TAX INVOICES
• Tax invoices must be provided to businesses for goods and
services provided for $50 or more
• Adjustment invoices (credit notes) must be provided for refunds or
returns of $50 or more
• Information on tax invoice must include:
– supplier’s ABN
– supplier’s name
– customer’s name and address
– date of issue
– description of goods and services provided
– details of price and GST-inclusive amount

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-9
WHAT IS SUBJECT TO GST?
• Most goods and services provided by GST-registered
businesses
• Some goods and services ‘input taxed’ (e.g. most
financial services and residential rents)
• Some goods and services ‘GST- free’ (e.g. most foods
and school fees)

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-10
INPUT TAX CREDITS
• Available when businesses pay GST on goods and
services used to operate the business
• Not available on ‘input taxed’ goods and services
• Not available unless registered for GST

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-11
GST INPUT TAX CREDITS

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-12
GST COLLECTED

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-13
GST CLEARING

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
 2011 McGraw-Hill Australia Pty Ltd 2-14
 GST IN MANUFACTURING
A timber merchant sells wood to a furniture manufacturer for $200 + 10% GST ($20):

Activity statement
$
GST on sales 20 $20
less input tax credit --

GST payable 20

The furniture manufacturer sells a dining room suite to a retailer for $500 + 10% GST
($50):
AUSTRALIAN
Activity statement
$
TAX
GST on sales 50 $30
less input tax credit 20
OFFICE
GST payable 30

The retailer sells the dining room suite to a customer for $940 + 10% GST ($94):

Activity statement
$
GST on sales 94 $44
less input tax credit 50

GST payable 44

PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis
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