1. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd 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 2-1

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

3. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd KEY TERMS cont. GST collected Inventories Instalment Activity Statement Pay-as-you-go withholding tax Source documents Tax invoice 2-3

4. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd SOURCE DOCUMENTS Source documents that generate accounting entries –Sales invoices –Receipts/Cash register tape –Purchase invoices –Cheques –Adjustment notes –Memoranda –Electronic transfers 2-4

5. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd SOURCE DOCUMENTS cont. Documents that back up (substantiate) accounting entries –Sales and purchase orders –Delivery dockets –Bank deposit books –Petty cash dockets –Account statements 2-5

6. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd GST Tax on goods and services consumed in Australia Buyer/Consumer (non- business) bears cost of GST Businesses act as collecting agents for ATO 2-6

7. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd GST cont. GST-registered businesses entitled to input tax credits GST not applied to employees’ wages GST applied to contractor payments 2-7

8. 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 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 2-8

9. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd 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 2-9

10. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd 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) 2-10

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

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

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

14. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd GST CLEARING 2-14

15. PPTs to accompany Accounting and Bookkeeping: Principles & Practice by AAT and David Willis  2011 McGraw-Hill Australia Pty Ltd Activity statement $ GST on sales 20 less input tax credit-- GST payable20 AUSTRALIAN TAX OFFICE Activity statement $ GST on sales 94 less input tax credit50 GST payable44 Activity statement $ GST on sales 50 less input tax credit20 GST payable30 A timber merchant sells wood to a furniture manufacturer for $200 + 10% GST ($20): The furniture manufacturer sells a dining room suite to a retailer for $500 + 10% GST ($50): The retailer sells the dining room suite to a customer for $940 + 10% GST ($94): $20 $30 $44 GST IN MANUFACTURING 2-15