How is the Goods and Services Tax recorded through the GST Clearing account and reported as a current asset or current liability?
Recording the Goods and Services Tax on sales and purchases using the GST Clearing account and reporting the GST balance as a current liability owed to or a current asset receivable from the Australian Taxation Office
A focused VCE Accounting Unit 3 Area of Study 1 answer on the Goods and Services Tax. Explains why GST is neither revenue nor expense, records GST collected on sales and paid on purchases through the GST Clearing account, settles with the ATO, and reports the net balance correctly with reconciled figures.
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What this dot point is asking
VCAA wants you to record GST on sales and purchases through the GST Clearing account, settle the balance with the ATO, and report the net balance as a current liability or current asset. You must explain why GST never touches profit.
Why GST is not revenue or expense
The business collects GST on behalf of the government. The 10 percent added to a sale is never the business's income, and the 10 percent paid on a purchase is never the business's expense. Both flow through GST Clearing, leaving profit unaffected.
Recording GST
- Cash or credit sale: Credit GST Clearing with 10 percent of the selling price (it increases what the business owes the ATO).
- Cash or credit purchase of inventory or an asset: Debit GST Clearing with 10 percent of the cost (it reduces what the business owes the ATO).
- Settlement: when the GST return is lodged, the business pays the ATO (Debit GST Clearing, Credit Bank) or receives a refund (Debit Bank, Credit GST Clearing).
Worked example
Why this matters
GST appears on almost every transaction in the exam, so getting the side right keeps every entry balanced. Reporting the balance correctly affects the classified Balance Sheet and the liquidity indicators. Because GST never affects profit, students who route it through Sales or an expense account misstate the Income Statement.