The Goods and Services Tax (GST) has streamlined indirect taxation into a unified system under the 'One Nation One Tax' principle, which simplifies the previously complex VAT and excise system. Proper understanding and consistent accounting of GST entries are essential to ensure alignment between financial records and GST returns, like GSTR-1, GSTR-2B, and GSTR-3B, aiding in accurate filing of GSTR-9 at year-end. Here we outline the necessary accounting entries under the GST regime.

Transition from VAT and Excise to GST

Previously, businesses needed multiple accounts for excise, VAT, and service tax as input credits weren't interchangeable between state and central taxes. Essential ledgers included Excise payable, Input/Output VAT, CST, and Service tax accounts. The introduction of GST consolidates these into single accounts per GST Identification Number (GSTIN), reducing complexity.

Required Accounts under GST

• Input CGST account
• Output CGST account
• Input SGST account
• Output SGST account
• Input IGST account
• Output IGST account
• Input Cess account
• Output Cess account
• Electronic Cash Ledger

These accounts facilitate GST computation by allowing the offset of input tax on services against output tax on goods sales, reducing cash flow issues.

Recording GST Accounting Entries

Consider a few business transactions to understand GST accounting (before GST amounts):

Example 1: Intra-state Transactions

Mr. X's transactions from March 2024, involving purchases, sales, and expenses, are detailed to show journal entries considering a GST rate split as follows: CGST and SGST at 2.5% for goods, CGST and SGST at 9% for legal fees, and CGST and SGST at 14% for furniture.

Sample Entries:

• 14/3/24 - Purchase: Record goods purchase with GST, crediting Creditors
• 15/3/24 - Sales: Log sales value with applicable GST, debiting Debtors
• 18/3/24 - Expenses: Document legal fees payment, adjusting Bank account
• 28/3/24 - Asset Purchase: Note the furniture purchase with GST, using creditor's ledger

This results in net CGST and SGST payable, highlighting the reduced tax liability via input credits.

Example 2: Inter-state Transactions

Involves transactions from March 2024 for goods purchase/sale and operational expenses, demonstrating inter-state trade implications.

• 1/3/24 - Purchase: Record inter-state supplier transaction, impacting both input IGST and CGST
• 4/3/24 & 12/3/24 - Sales: Reflect sales adjustments against outputs, including intra-state GST liabilities
• 14/3/24 - Utility Expense: Enter telephone bill payment, leveraging available credits
• 25/3/24 - Equipment Investment: Capture air cooler purchase locally, linked to the bank outflow

Here, set-offs balance out CGST, SGST, and IGST liabilities with available credits and the Electronic Cash Ledger.

Effect on Financials and Balance Sheets

The GST framework impacts the Profit & Loss Account by adjusting raw material costs and varies sales based on GST rates. On the Balance Sheet, fixed assets decrease due to capital good input credits, affecting tax-related entries per the GST liability.

Adherence to Accounting Standards

GST aligns with Generally Accepted Accounting Principles (GAAP), maintaining conventional revenue recognition and other principles. Businesses must retain these records for five years post the Annual Return filing deadline, ensuring annual reconciliation with GST returns.

To deepen understanding, explore resources on amendments, record-keeping, and GST account requirements.