How to Pass Accounting Entries under GST?

The goods and services tax, or GST, replaced the majority of indirect taxes that have resulted in the “One Nation, One Tax” system. In comparison to the previous VAT and excise systems, accounting entries under GST are simpler.

However, accounting entries in the books of accounts must be understood and passed regularly. It’s critical to ensure that few or no discrepancies between the books of accounts and GST returns like GSTR-1, GSTR-2B, and GSTR-3B. It would also aid in the proper and timely reconciliation of yearly accounts in preparation for GSTR-9 filing for the fiscal year. In this post, you’ll learn about the accounting entries that must be passed under GST.

Accounts To be Maintained under GST 

All of these previously separate indirect taxes, such as excise, VAT, and service tax, are now combined into a single account under GST. Every taxpayer must keep the following accounts (aside from purchase, sales, and stock) for each GST Identification Number (GSTIN): 

1. Input the IGST account 
2. Output IGST account  
3. Input CGST account  
4. Output CGST account 
5. Input SGST or UTGST account 
6. Output SGST or UTGST account 
7. Input CESS account 
8. Output CESS account 
9. E-Cash Ledger or E-Credit ledger to be maintained on the Government GST portal to deposit GST in cash and make payments therefrom) 

It will be much easier to keep records once you have gone over the accounting ledgers and understand how they work. Now, the question arises, how to pass accounting entries under GST? Let us understand this with an example. 

Example of Accounting Entries under GST 

We’ll look at a few company transactions to know the accounting entries under GST 

1. At the local market, Mr. A purchased products valued at INR 10,000. 
2. In the same region, he sold the things for INR 30,000. 
3. He paid INR 500 consultation charge. 
4. Mr. A bought furniture for INR 10,000 as he considered expanding his firm. 
5. Assuming a CGST rate of 10% and SGST rate of 10%. 

S. No	Particulars	Dr.	Cr.
1	Purchase A/c	10,000
	CGST Input A/c	1,000
	SGST Input A/c	1,000
	To Creditors  A/c		12,000
2	Debtors A/c	36,000
	To Sales A/c		30,000
	To Output CGST A/c		3,000
	To Output SGST A/c		3,000
3	Consultation fee A/c	500
	CGST Input A/c	50
	Input SGST A/c	50
	To Bank A/c		600
4	Furniture A/c	10,000
	CGST Input A/c	1,000
	SGST Input A/C	1,000
	To ABC furniture A/c		12,000

By GST accounting entries we get, 

1. Total Input CGST = 1,000 + 50 + 1,000 = INR 2,050
2. Total Input SGST = 1,000 + 50 + 1,000 = INR 2,050  
3. Total output CGST = INR 3,000 
4. Total SGST output = INR 3,000 

Therefore, 

1. NET CGST to be paid = 3,000 – 2,050 = INR 950 
2. NET SGST to be paid = 3,000 – 2,050 = INR 950 

GST Accounting Entries Impact on Financial Statements 

The Cost of raw materials and other expenses are reduced. 

GST enables seamless input credits for items purchased both within and outside the jurisdiction. This will lower the cost of raw materials because input GST can be deducted from the output GST due on sales. In addition, GST paid on a variety of services, such as legal consultations, audit fees, and engineering consultations can be deducted from output GST. Previously, service tax paid as an input credit could not be offset against output excise/VAT. All of these will significantly reduce costs. However, depending on the industry and the GST rates, the impact on sales may vary. 

ITC on Capital Goods and Services 

Input credit will be offered on both capital goods and services related to such items, such as installation, inspection, and so on, lowering the effective cost of fixed assets. Changes will also be made to tax due and credit receivable. 

Maintaining Records Under GST 

Until the products are in storage, the owner or operator of the storage facility must ensure that books of accounts are accessible. This comprises information about the goods’ shipment, delivery, receipt, and disposal. The carrier of goods and services is required to maintain track of the goods in the warehouse, delivered, and in transit. 

All records and accounts must be stored at a single location where all business records and accounts are maintained. If the GST registration certificate mentions more than one location, records and accounts for each location must be kept separately and in the same order as the accounts relate to.  Business owners must ensure effective record keeping and accounting if records are kept online.   In addition, all records should be ready to be shown at any time. The entity is responsible for the audit when its profit exceeds the stipulated financial limit. 

Types of Records to be Maintained under GST 

Types of Records	Information Required
Register of Goods Produced	Details of commodities manufactured at a company or production house should be included in the account.
Purchase Register	All purchases made during a tax period to manufacture goods or provide services.
Sales Register	A record of all sales done during a tax period must be kept.
Stock Register	This register should contain the most up-to-date inventory supply accessible at any given time.
Input Tax Credit Availed	This register should keep track of the ITC that has been claimed for a specific tax period.
Output Tax Liability	This register should keep track of any outstanding GST liabilities that need to be adjusted against ITC or paid out in full.
Output Tax Paid	The details of GST paid for a specific tax period should be kept in this record.
Other Records Specified	The government can also specify new records and accounts to be kept via notification.