CHAPTER 2 Source documents and goods and services tax

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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 PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd PPTs to accompany Accounting and Bookkeeping Principles by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd

9. 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

10. 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

11. 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

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

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

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

15. A timber merchant sells wood to a furniture manufacturer for $200 + 10% GST ($20): GST IN MANUFACTURING Activity statement $ GST on sales 20 less input tax credit -- GST payable 20 $20 The furniture manufacturer sells a dining room suite to a retailer for $500 + 10% GST ($50): AUSTRALIAN TAX OFFICE Activity statement $ GST on sales 50 less input tax credit 20 GST payable 30 $30 The retailer sells the dining room suite to a customer for $940 + 10% GST ($94): Activity statement $ GST on sales 94 less input tax credit 50 GST payable 44 $44 PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd