Learn Accounting Entries Under GST with Journal Entry [RCM] - Meteorio

Learn Accounting Entries Under GST with Journal Entry [RCM]

| 7 years ago

In this article, we will know  various accounting aspects of input tax credit under GST. We will also understand the set-off conditions of CGST, SGST/UTGST, IGST.

What is so new under GST?

Under GST, a normal taxpayer has a very small time frame for return filing.

Every person’s GST Compliance will be reviewed by the Govt. through a “rating system”.  I expect these GST rating may replace “CIBIL’s rating” for businesses. So, there is no place for wrong or late return filing or tax payment.

“A good accounting system can make a complex business environment very easy and with minimal errors” 🙂

 

Basic of GST Accounting

Let us learn a few basic rules of GST before creating accounting entries for it.

  1. You must have valid inward (purchase) tax invoices for taking input tax credit.
  2. There is no concept of centralized registration under GST. So, try to make separate invoices for your different state’s branches/unit.
  3. Supply within the state will attract both CGST and SGST. (Till date there are many states whose SGST/UTGST bill is yet to come.)
  4. Supply outside the state/country will attract only IGST.

GST input credit

Apart from the above Input Credit rule, Credit of IGST, CGST and SGST are limited to a state only. For example, IGST of Bihar can’t be used to pay SGST of West Bengal.”

 

Accounting Entries Under GST

First, open the following new Ledger or accounts in your books or software (Tally)

Accounts ledgers under GST

Now let us understand the use of the above accounts of taxes with an example 🙂

 Example 1: Supply within the state (Intra State Supply)

Mr.Ram a registered person of “Bihar”

  1. Purchase from registered dealer of “Bihar” For Rs.52500/-(include Tax of Rs.2500)
  2. Sold the purchased goods in “Bihar” for Rs.63000/-(include Tax of Rs.3000)
  3. Pays to Chartered Accountant of “Bihar” Rs.1180/-(include Tax of Rs.180) for filing return.
  4. Purchase Chair from Mr.Shyam of “Bihar” on credit for Rs.1250/-(include Tax of Rs.250)
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Journal Entries

1Purchase A/c………………..Dr50000
Input Bihar CGST………….Dr1250
Input Bihar SGST………….Dr1250
To Bank A/c52500
(Being goods purchased)
2Bank A/c…………………….Dr63000
To Sales60000
To Output Bihar CGST1500
To Output Bihar SGST1500
(Being goods sold)
3Filling Fees………………….Dr1000
Input Bihar CGST………….Dr90
Input Bihar SGST………….Dr90
To Bank A/c1180
(Being filling fees paid)
4Chair A/c…………………..…Dr1000
Input Bihar CGST………….Dr125
Input Bihar SGST………….Dr125
To Mr.Shyam A/c1250
(Being chair purchased on credit)
CGSTSGST
(A)Total Output tax15001500
(B)Total input tax14651465
(c)Net GST payable (A)-(B)3535
Pay GST
5Output Bihar CGST………….Dr1500
Output Bihar SGST………….Dr1500
To Input Bihar CGST1465
To Input Bihar SGST1465
To E Cash Ledger A/c-GST potal70
(Being GST paid)

Read: Requirement of  Audit Under GST.

Example 2: Supply outside the state (Inter State Supply)

Mr.Ram a registered person of “Bihar”

  1. Purchase from registered dealer of “Bihar” For Rs.52500/-(include Tax of Rs.2500)
  2. Sold the purchased goods in “Jharkhand” for Rs.63000/-(include Tax of Rs.3000)
  3. Pays to Chartered Accountant of “Bihar” Rs.1180/-(include Tax of Rs.180) for filing return.
  4. Purchase Chair from Mr.Shyam of “Bihar” on credit for Rs.1250/-(include Tax of Rs.250)

Journal Entries:

1Purchase A/c………………..Dr50000
Input Bihar CGST………….Dr1250
Input Bihar SGST………….Dr1250
To Bank A/c52500
(Being goods purchased)
2Bank A/c…………………….Dr63000
To Sales60000
To Output Bihar IGST3000
(Being goods sold)
3Filling Fees………………….Dr1000
Input Bihar CGST………….Dr90
Input Bihar SGST………….Dr90
To Bank A/c1180
(Being filling fees paid)
4Chair A/c…………………..…Dr1000
Input Bihar CGST………….Dr125
Input Bihar SGST………….Dr125
To Mr.Shyam A/c1250
(Being chair purchased on credit)
Amt.
(A)Total Output tax (IGST)3000
(B)Total input tax (CGST+SGST)2930
(c)Net GST payable (A)-(B)70
Pay GST
5Output Bihar IGST………….Dr3000
To Input Bihar CGST1465
To Input Bihar SGST1465
To E Cash Ledger A/c-GST portal70
(Being GST paid)

 

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Accounting Entries for Reverse Charge Mechanism (RCM)

XYZ Ltd, a cigarette/Bidi manufacturer of “Kolkata”:

  1. Purchase Tobacco leaves from X (Agriculturist) of “West Bengal” For Rs.10000/-(without GST)
  2. Purchase Tobacco Bidi wrapper leaves (tendu) from Y (Agriculturist) of “Jharkhand” For Rs.20000/-(without GST)
Journal Entries
1st Transaction
1Tobacoo Leaves A/c    ………………….. Dr10000
To X10000
(Being tobacco leaves purchased from X)
2X    ……………………………………….   Dr10000
To Bank A/c10000
(Being payment made for purchase of
tobacco leaves)
3Input WB CGST A/c   …………………..  Dr250
Input WB SGST A/c   …………………..  Dr250
To WB CGST A/c250
To WB SGST A/c250
(Being liability under RCM @ 5% created)
4WB CGST A/c   ……..……………………..  Dr250
WB SGST A/c   ……..……………………..  Dr250
To Bank A/c500
(Being RCM liability paid)
2nd Transaction
1Tendu Leaves A/c   …………………….. Dr20000
To Y20000
(Being tendu leaves purchased from Y)
2Y    ……………………………………….   Dr20000
To Bank A/c20000
(Being payment made for purchase of
tendu leaves)
3Input WB IGST A/c   …………………..  Dr1000
To WB IGST A/c1000
(Being liability under RCM @ 5% created)
4WB IGST A/c   …………………………..  Dr1000
To Bank A/c1000
(Being RCM liability paid)

Notes:

  1. GST under RCM can be utilised as ITC by the recipient of the supply. For taking ITC, the recipient needs to pay GST first.
  2. In the 1st transaction, CGST & SGST of West Bengal (WB) is used because it is an intra-state supply.
  3. In the 2nd transaction, IGST of West Bengal (WB) is used because it is an inter-state supply and the consumption of supply is in West Bengal.

 

 

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Pravin Giri

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Pravin is a Qualified Chartered Accountant [CA]. Gives opinions on Income tax, GST, and finance.Find him on Twitter @Pravinkumargiri

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