Learn Accounting Entries Under GST with Journal Entry [RCM]

| 4 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

1 Purchase A/c………………..Dr 50000
Input Bihar CGST………….Dr 1250
Input Bihar SGST………….Dr 1250
To Bank A/c 52500
(Being goods purchased)
2 Bank A/c…………………….Dr 63000
To Sales 60000
To Output Bihar CGST 1500
To Output Bihar SGST 1500
(Being goods sold)
3 Filling Fees………………….Dr 1000
Input Bihar CGST………….Dr 90
Input Bihar SGST………….Dr 90
To Bank A/c 1180
(Being filling fees paid)
4 Chair A/c…………………..…Dr 1000
Input Bihar CGST………….Dr 125
Input Bihar SGST………….Dr 125
To Mr.Shyam A/c 1250
(Being chair purchased on credit)
CGST SGST
(A) Total Output tax 1500 1500
(B) Total input tax 1465 1465
(c) Net GST payable (A)-(B) 35 35
Pay GST
5 Output Bihar CGST………….Dr 1500
Output Bihar SGST………….Dr 1500
To Input Bihar CGST 1465
To Input Bihar SGST 1465
To E Cash Ledger A/c-GST potal 70
(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:

1 Purchase A/c………………..Dr 50000
Input Bihar CGST………….Dr 1250
Input Bihar SGST………….Dr 1250
To Bank A/c 52500
(Being goods purchased)
2 Bank A/c…………………….Dr 63000
To Sales 60000
To Output Bihar IGST 3000
(Being goods sold)
3 Filling Fees………………….Dr 1000
Input Bihar CGST………….Dr 90
Input Bihar SGST………….Dr 90
To Bank A/c 1180
(Being filling fees paid)
4 Chair A/c…………………..…Dr 1000
Input Bihar CGST………….Dr 125
Input Bihar SGST………….Dr 125
To Mr.Shyam A/c 1250
(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
5 Output Bihar IGST………….Dr 3000
To Input Bihar CGST 1465
To Input Bihar SGST 1465
To E Cash Ledger A/c-GST portal 70
(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
1 Tobacoo Leaves A/c    ………………….. Dr 10000
To X 10000
(Being tobacco leaves purchased from X)
2 X    ……………………………………….   Dr 10000
To Bank A/c 10000
(Being payment made for purchase of
tobacco leaves)
3 Input WB CGST A/c   …………………..  Dr 250
Input WB SGST A/c   …………………..  Dr 250
To WB CGST A/c 250
To WB SGST A/c 250
(Being liability under RCM @ 5% created)
4 WB CGST A/c   ……..……………………..  Dr 250
WB SGST A/c   ……..……………………..  Dr 250
To Bank A/c 500
(Being RCM liability paid)
2nd Transaction
1 Tendu Leaves A/c   …………………….. Dr 20000
To Y 20000
(Being tendu leaves purchased from Y)
2 Y    ……………………………………….   Dr 20000
To Bank A/c 20000
(Being payment made for purchase of
tendu leaves)
3 Input WB IGST A/c   …………………..  Dr 1000
To WB IGST A/c 1000
(Being liability under RCM @ 5% created)
4 WB IGST A/c   …………………………..  Dr 1000
To Bank A/c 1000
(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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