How do I do this? (Accounting question)

[Christopher Browne]

On Thu, 31 Aug 2000 15:02:05 +1100, the world broke into rejoicing as
Conrad Canterford <conrad@mail.watersprite.com.au>  said:
> I have some conceptual problems which I'm hoping someone will be able to
> explain for me. Since they are not specifically gnucash related, private
> response may be warranted.
> 
> My problem:
> I have, up to now, been entering stock (as in, the stuff I sell, not
> shares in companies) purchases as expenses, and not keeping any sort of
> accounting in Gnucash of my stock on hand. This is entered in the
> double-entry stuff as a deduction from the cash account, and an addition
> to my "Expenses:Stock:xxxxxx" account (depending where it was bought
> from).
> 
> However, we are about to get big enough to start worrying about the GST
> ("Goods and Services Tax"), and this really starts to make it more
> important that I keep track of my stock on hand as well. My problem is,
> I cannot visualise how to enter this.
> 
> I need to deduct money from the bank account. Some of that goes as a
> pre-paid GST, and the rest is an expense for stock purchase. However, I
> also need to add that same amount to an asset account "Stock on Hand",
> don't I? I could enter it straight to the asset account, and not record
> the expense, but then how do I track my total stock purchases?
> 
> Similarly on a sale, some of the money goes as a liability for GST
> payable and the remainder is income, and all of that goes into the cash
> account. But I also need to deduct the cost of goods sold from my "Stock
> on Hand" asset account to get that to track properly. I cannot bypass
> the recording of income - I need this for my tax declarations.
> 
> So
> a) How would this be done in a normal double-entry accounting system?
> b) How do (can?) I do this in Gnucash?

There's probably "more than one way to skin the cat," but I'll hazard
a guess...

Initial purchase: $10,000 of material purchased, plus $1,000 GST.

Recorded as the transaction:
                 DR        CR
Chequing                  $11,000
Inventory - cost  $10,000
Inventory - GST     1,000

Then you sell this "lot" for $22,000

Accounts Receivable  $22,000
Sales                           $20,000
GST On Sales                    $ 2,000

As well as a transaction recording the expenses:
Cost of Goods Sold   $10,000
GST On Sales          $1,000
Inventory - Cost              $10,000
Inventory - GST                $1,000

Then you collect from the customer:
Chequing            $22,000
Accounts Receivable          $22,000

And pay the tax man...
GST Expenditure      $1,000
Chequing                      $1,000

The final resulting balances:
Balance Sheet - Assets
Chequing             $10,000
Inventory                  0
Inventory - GST            0
Accounts Receivable        0

Expenses:
Cost of Goods Sold    10,000

Revenues:
Sales:                        20,000

Tax Income Statement Accounts:
GST On Sales                  $1,000
GST Expenditure       1,000

Note that this all balances to $0, which suggests at least _some_
degree of correctness.

A "policy issue" would be of just how to treat the GST expenses/revenues.

Open Question:  Should total sales be $20,000, which is the "untaxed"
portion, or should they be $22,000, the "taxed" amount?  That's a
question to take to your Chartered Accountant.

Further, I think there would be a way for it to be valid for the
amounts in the "tax income statement accounts" to be $2,000 rather than
$1000.  Again, that's a question for an accountant knowledgeable with
the accounting standards used in Australia.

But the above set of transactions are at least not an _outrageous_
handling of it...
--
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