All the taxpayers registered under GST must maintain the records at their principal place of business. The small business owners are often confused with either to choose cash-basis accounting or accrual accounting to record the transactions. Business owners must understand the difference and be aware about the implications of every method and then decide which the best option for their business is.
Choosing a GST Accounting Method
The methods of accounting for GST (Goods and Services Tax) can be divided into two categories, a cash and non-cash basis. When you have to report GST, your chosen method will have influence.
The businesses having an aggregated turnover of less than $10 million, or those who make use of cash accounting for income tax, may use either method. Very large businesses make use of non-cash method.
- Accounting cash basis GST
The businesses of aggregated turnover of not more than $10 million may choose to account for the GST using accounting on cash basis.
When you are doing accounting on cash basis, it means you account for GST on the business activity statement which covers the time period in which you receive or make payments for the sales and purchases.
The benefits of implementing accounting cash basis are:
- It suits the best for small businesses that handles cash transactions.
- The money flowing through the business is aligned in better way with the activity statement liabilities; therefore, it is much easier to handle the cash flow.
If any of the following are applicable, you may make use of cash accounting method:
- You are a business entity that is an individual, partnership, trust, or a company with an aggregated turnover of not more than $10 million
- You don’t carry a business; however, the GST turnover of your enterprise is equal to or less than $2 million
- On the cash basis, you account for income tax
- You run an enterprise we have agreed may account for GST on the cash basis irrespective of the GST turnover, which is:
- A School by Government
- A charitable institute or trustee of an endorsed charitable fund
- A gift-deductible entity
If you don’t fall into any of the above categories, you may ask to be allowed to account for GST on a cash basis.
- Accounting non-Cash basis GST
Big businesses must make use of non-cash accounting method; however, small businesses have the option to either go for cash or non-cash method.
Using the non-cash method implies you account for GST on business activity statement which covers the period in which:
- You received a payment or have issued the tax invoice before receiving the payment
- You received the invoice from the supplier before making the payment, or you made the payment for a purchase
Non Cash accounting is much more complicated than cash accounting and you could require assistance from the registered tax or BAS agent.
EFFECT OF CHANGING FROM CASH TO A NON‑CASH (ACCRUALS) METHOD
This change may only take effect from the very first day of a tax period. During the first tax period, you shift from cash to a non-cash basis; you will require accounting for sales or purchases that you have not claimed previously. You are required to report these sales in the first tax period you use the non-cash method, for the sales where invoices were issued prior to the date of change; however, the payments were yet to be received or made.
If you partly accounted for GST for a sale before the change, you should account for the balance of the GST on the sale in the first tax period you make use of non-cash method. During the first tax period that you begin to use the non-cash method, you stand eligible to claim any unclaimed GST credits that you hold a tax invoice for.
OUR COMMITMENT TO YOU
We are committed to give you the accurate, consistent, and clear information to assist you understanding your rights and entitlements to meet the obligations. If you feel that this article does not cover your circumstances completely, or you are not sure how these are applicable to you, you may take our assistance. You may also change the method of accounting that you are using, by lodging a request. We can do that for you. Call now Reliable Bookkeeping Services and get the best for your business.