A bit thick on how to handle GST

[linas@linas.org]

It's been rumoured that Robert Graham Merkel said:
> 
> alistair clethero writes:
>  > Folks
>  > 
>  > Can anybody explain to me the following on GST ? I've read some previous
>  > emails and i think i'm on the right track but i'm no accountant...
>  > This is simplified since i guess i would be using expense and income
>  > accounts somewhere.
>  > 
>  > I purchase widgets for $1000 plus GST tax  at 10% of $100, then
>  > 
>  > my bank gets CREDITED, which is an ASSET account - the credit sends the
>  > balance down by $1100
>  > my INVENTORY account gets DEBITED, which is an ASSET account - the debit
>  > sends the balance up by $1000
>  > my GST PAID account gets DEBITED, which is an ASSET account - the debit
>  > sends the balance up by $100
>  > 
>  > so i spent $1100, and the value of my assets has increased by $1100.
>  > 
>  > Is this right? Is GST really an ASSET? To the business it has no real
>  > value unless the GST paid can be passed on to others if the goods are
>  > resold? So therefore if goods are resold it's an asset? If not it's
>  > a...?

If not, its an expense.

In countries with a 'sales tax',  the account type would be 'expense'.
After the transaction, your assets would have increased only by $1000.  
(i.e. you were $100 poorer after the transaction, than before). 

>  > I sell widgets for $1000 plus GST tax  at 10% of $100, then
>  > 
>  > my bank gets DEBITED, which is an ASSET account - the debit sends the
>  > balance up by $1100
>  > my INVENTORY account gets CREDITED, which is an ASSET account - the
>  > credit sends the balance down by $1000
>  > my GST COLLECTED account gets CREDITED, which is a LIABILITY account -
>  > the credit sends the balance down by $100

That could work.

The other way to do this would be to have an 'income' account:  you
would record $100 of income when you sold the widgets.  (alternately,
you record in the same 'expense' account that record the paid-out gst.)

This would work, with only one gotcha:  in the US, you would owe 'income
tax' on your income minus your expenses. (crudely speaking, its more
subtle than that, which is why I think you could record it that way.)
If you really expect to make that money back, you should talk with your 
accountant, since you probably need that level of help.


>  > Appreciate any thoughts on the above, I'm afraid I'm not hot on
>  > accounting, even with a book.
> 
> GST handling can be tricky.  The approach you've described above
> should certainly work.
> 
> What we really need, however, is to fix gnucash to aid the process of
> GST collection.  This may involve a new type of account - "GST", where
> both GST collected and GST paid are stored.

I don't see why it needs to be a new account 'type'.   He could put the
GST in either an asset account, or in an income account.  In one case,
the default report shows gst as contributing to the net worth, in the
other case, it doesn't.   How you want to think about it is between you,
your accountant, and your tax collector.

--linas