Poor choice of VAT/GST account setup in the docs?

[DaveC49]

Frank,
 While this is the initial position with heavy initial purchases , it is
unlikely to be the long term position in a viable business, hence the use of
Liability accounts to record GST transactions as you generally have to pay
this to the tax office.

In Australia, which has a GST system where you get GST tax credits on
purchases and you pay GST tax on your sales, a commonly used setup is to use
a Liability:GST:GSTCollected account (credited by GST amount on a sale) to
record the GST payable to the tax office on sales and a
Liability:GST:GSTPaid contra account (debited by the amount of GST on a
purchase) to record the GST you have paid on purchases you have made.

A Liability:GST header account then gives you the current position as the
sum of the balances of these two accounts, a credit balance indicating you
owe the government money while a debit balance means they owe you money. Our
system also has Input taxed classes of goods and GST free items  both as
sales and purchases and we have to provide information on these in the
return to the tax office. Capital items also have to be reported separately.

When you pay the government what you owe them,  a debit to the
Liability:GST:GSTCollected account with the corresponding credit entry to
your bank account zeroes out the tax paid (not an expense as you collect the
GST on behalf of the government).   I have even received a refund where the
tax paid on purchases exceeded the tax collected and, in this case the
Liability:GST:Paid account would be credited by the amount of the refund
with a corresponding debit to your bank account.

I think as Maf pointed out the main requirement is that whatever structure
you do use, it has to reflect the operation of the GST/VAT system and
generate all the data you need to provide for the periodic returns you have
to make to your tax office.  GnuCash is sufficiently flexible to allow you
to setup whatever structure is appropriate but it does require a detailed
knowledge of the GST/VAT system and general accounting.



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