Goods and Services Tax (GST) accounting is basic accounting that involves liabilities accounts like GST payable, cash and sales revenue, assets, and income. Note that current liability account is used to record the output tax collected.
GST accounts and accounts payable are both current liability accounts. The difference is that account payable accounts for invoices that the business owes to other entities and paid out by your business. On the other hand, GST payable account represents your duty to submit collected GST to the IRAS.
The GST collected should never be treated as an expense upon remitting the GST to IRAS. As much as it may appear as a payout from the company, a GST is a customer’s expense (If the customer is a final consumer or a non-GST registered entity) paid to the company who in turn submits to the government. Another common assumption will be to represent it as income in your company books throughout the bookkeeping process, which is so wrong (Also see Why you can’t afford to be poor at Bookkeeping?). The perception to adopt is that of an agent with the assumption that we are collecting revenue on behalf of the government.
Note that GST exemptions may apply to various provisions of financial services, the importation and local supply of precious metals, and the lease and sale of residential property. Also, the exported goods and international services can be zero-rated if they fulfil the requirement under Section 21(3) of GST Acts.
If you are operating a business in Singapore, you should register for GST when:
- You make or want to make taxable supplies and you anticipate your taxable turnover within 12 months to be S$1 million or more.
- Your business taxable turnover for the past one year is more than S$1 million.
Here are examples of accounts to manage and record GST that you may need to set up:
- GST receivable / payable
- Sales Revenue
- Purchase and other expenses
Steps on how to record the GST
A customers’ purchase is debited as the gross which is the whole amount paid under accounts receivable or cash, dependent on how the client paid. The net sales amount will be credited, and GST payable to the account be increased with the collected tax.
Some people in business find it a challenge to separate the GST and revenue at the point of purchase. In such a case, it is vital to create an independent journal to enter Goods and Services Tax when you separate them from the sales revenue account into Goods and Services Tax payable. If you need accounting services in Singapore to get yourself out from this tedious process, Contact Us to get reliable support.