{"id":19911,"date":"2020-11-21T16:55:57","date_gmt":"2020-11-21T11:25:57","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=19911"},"modified":"2020-11-21T16:55:59","modified_gmt":"2020-11-21T11:25:59","slug":"gst-accounting-and-finalization-of-account","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/","title":{"rendered":"GST Accounting and Finalization of Account- A Complete Overview"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The advent of Goods and Services Tax has impacted many sectors across the country in one way or another. It has also triggered the changes in the finalization of the account. Unlike older regimes, account treatment of GST is easier and less complicated due to the presence of fewer taxes. However, institutions are required to adopt a cautious approach when it comes to handing the GST record keeping to maintain compliance. This write-up will brief you on everything regarding GST accounting and the finalization of account.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Overview_of_Finalization_of_Account\" >Overview of Finalization of Account<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Accounts_and_Other_Records\" >Accounts and Other Records<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Accounting_Entries_under_GST\" >Accounting Entries under GST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Electronic_Cash_and_Credit_Ledger\" >Electronic Cash and Credit Ledger<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Period_for_Retention_of_Accounts_under_GST\" >Period for Retention of Accounts under GST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Consequences_of_Not_Maintaining_Proper_Records\" >Consequences of Not Maintaining\nProper Records<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Calculation_of_GST_in_Accounting\" >Calculation of GST in Accounting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#GST_Turnover_Reconciliation_Vs_Revenue_Recognition\" >GST Turnover Reconciliation Vs Revenue Recognition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/gst-accounting-and-finalization-of-account\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Overview_of_Finalization_of_Account\"><\/span>Overview of Finalization of Account <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The finalization\nof account refers to the closure of entry in the book of account for a\nparticular financial year.&nbsp; The process\nof finalization of account initiates with the preparation of Trial Balance\nbased on the ledger account.&nbsp; The trial\nbalance is further used to prepare the final account i.e. Profit and Loss\naccount and trading account. The income and the direct expenditures are then\nrouted to the trading account. <\/p>\n\n\n\n<p>Given the above,\nthe gross profit is calculated which further carries forward to the Profit and\nLoss account. The P&amp;L also encloses indirect expenses and gross profit. The\nnext step is to calculate the Net profit which can be obtained by subtracting indirect\nexpenses from the indirect income. The net profit is meant to be transferred to\nthe balance sheet along with the capital account. <\/p>\n\n\n\n<p>This is what the\nfinalization of account is all about. In this blog, we would take a look into\nfinalization of account from the GST perspective. Let&#8217;s move to the following\nsections to obtain information regarding GST accounting and the finalization of\naccount.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Accounts_and_Other_Records\"><\/span>Accounts and Other Records<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Every taxpayer under <a href=\"https:\/\/corpbiz.io\/gst-registration\"><strong>GST registration<\/strong><\/a> is required to maintain the accounts and other important records at the principal place of business. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Who will be Accountable for\nMaintaining the Accounts under GST?<\/h3>\n\n\n\n<p><strong><em>It is the accountability of the following individuals to handle specified records- <\/em><\/strong><\/p>\n\n\n\n<ul><li>The owner<\/li><li>Operators working in the warehouse or any other place where\ngoods are being stored.<\/li><li>The owner of the transporting company. <\/li><li>Every taxpayer whose annual turnover surpasses the threshold\nlimit (2 crores) should handover their account credentials and records to the\nCharted account for auditing. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Records under GST<\/h3>\n\n\n\n<p><strong><em>Every registered individual ought to maintain the record of the following components, which are as follows:-<\/em><\/strong><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-59.png\" alt=\"Records under GST\" class=\"wp-image-19951\" width=\"541\" height=\"541\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-59.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-59-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-59-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-59-768x768.png 768w\" sizes=\"(max-width: 541px) 100vw, 541px\" \/><\/figure><\/div>\n\n\n\n<p>There different\ntypes of accounts to be managed that companies require keeping under GST. For\ninstance, under Goods and Services Tax, a trader is responsible for maintaining\nthe given account except for accounts like sales, purchase, and stock. <\/p>\n\n\n\n<ul><li>Input CGST account<\/li><li>Output CGST account<\/li><li>Input SGST account <\/li><li>Output SGST account <\/li><li>Input IGST account <\/li><li>Output IGST account <\/li><li>Electronic Cash Ledger (maintained on the GST portal)<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/benefits-of-gst-registration-online-in-india\/\">Everything you Need to Know about Benefits of GST Registration<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Accounting_Entries_under_GST\"><\/span>Accounting Entries under GST<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Despite initial\ntransaction hurdles, Goods and Services Tax would impart transparency in a\ndifferent part of the business including bookkeeping and accounting.<\/p>\n\n\n\n<p>While the\nmajority of the accounts are under GST, record-keeping for accounting entries\nhas now become considerably easier. This allows the traders to set off the\ninput tax with the output tax on the sale. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Electronic_Cash_and_Credit_Ledger\"><\/span>Electronic Cash and Credit Ledger<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Every registered\nperson has to maintain three ledgers under GST which is typically generated\nautomatically during the registration time. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Electronic Cash Ledger<\/h3>\n\n\n\n<p>The ledger act as\nan electronic wallet, where the taxpayer must deposit money to the wallet &#8211;\nelectronic cash ledger. The funds in the wallet will be used to make payment. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Electronic Credit Ledger<\/h3>\n\n\n\n<p>The input tax\ncredit (ITC) on purchases will be shown here, particularly under IGST, CGST\n&amp; SGST. The registered person can easily use the balance reflected in this\naccount for the payment of tax only. Please note that the said payment cannot\nbe used for interest or penalty. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">E-Liability Ledger<\/h3>\n\n\n\n<p>This ledger meant\nto reflect the total tax liability of a taxpayer after netting off for the\nspecific month. This ledger is generated automatically. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Period_for_Retention_of_Accounts_under_GST\"><\/span>Period for Retention of Accounts under GST<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Under the GST regime, every taxpayer supposes to maintain the account books and record for a minimum period of 6 years (72 months). The period would be started from the last date filing for yearly return for that financial year. Keep in mind that the 31st of December is the date of filing the yearly return. <\/p>\n\n\n\n<div class=\"shadow1\"><strong>For Example: &#8211; <\/strong> For the year 2018-2019, the due date of filing the yearly return is 31st Dec 2019. The records and books for the financial year 2018-2019 must be maintained for six years, i.e. 31.12.2024.<\/div>\n\n\n\n<p>If the registered\nperson has faced any proceedings in the past before First Appellate or is under\nlegal scrutiny then he is liable to maintain the books for one year after the\norder of said appeal has been passed. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Consequences_of_Not_Maintaining_Proper_Records\"><\/span>Consequences of Not Maintaining\nProper Records<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In case of the\nviolation of the record-keeping norms, the registered officer can consider the\nunaccounted goods\/services as part of a successful supply.&nbsp; In such an event, tax liabilities will be\nimposed on the said goods and services according to the slab rate. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The scenario under VAT\nand Excise<\/h3>\n\n\n\n<p>Individual accounts had to be maintained under CST, excise, VA, and service tax. The following list shows the different account that businesses were liable to maintained under the old regime (this doesn&#8217;t include sales, purchase, stock)<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-60.png\" alt=\"The scenario under VAT and Excise\" class=\"wp-image-19953\" width=\"526\" height=\"526\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-60.png 1000w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-60-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-60-300x300.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-60-768x768.png 768w\" sizes=\"(max-width: 526px) 100vw, 526px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Calculation_of_GST_in_Accounting\"><\/span>Calculation of GST in Accounting<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>At present, there are seven slab rates for good under the Goods and Services Tax method, with each securing a particular schedule for itself. As per the GST regime, there is 5 slab rated for various services.  Tabular Representation of GST Rate  <\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong>Schedule Number \u2013\n  Service Number<\/strong>\n  <\/td><td>\n  <strong>GST Rate<\/strong>\n  <\/td><\/tr><tr><td>\n  I \u2013 I&nbsp;\n  <\/td><td>\n  Nil\n  <\/td><\/tr><tr><td>\n  II&nbsp;\n  <\/td><td>\n  0.25%\n  <\/td><\/tr><tr><td>\n  III&nbsp;\n  <\/td><td>\n  3%\n  <\/td><\/tr><tr><td>\n  IV-II\n  <\/td><td>\n  5%\n  <\/td><\/tr><tr><td>\n  V -III\n  <\/td><td>\n  12%\n  <\/td><\/tr><tr><td>\n  VI \u2013 IV\n  <\/td><td>\n  18%\n  <\/td><\/tr><tr><td>\n  VII \u2013 V\n  <\/td><td>\n  28%\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<h3 class=\"wp-block-heading\">Procurement of record under\nGST (from finalization of the account perspective)<\/h3>\n\n\n\n<p><em><strong>The following taxpayers are liable to maintain records under GST law;<\/strong><\/em><\/p>\n\n\n\n<ul><li>Owners of\nthe company<\/li><li>Warehouse\noperators<\/li><li>Owner of\ntransporting company. <\/li><li>Registered taxpayer\nwith an yearly turnover more than INR 2 crore<\/li><\/ul>\n\n\n\n<p><strong><em>Following records must be maintained the above individuals:-<\/em><\/strong><\/p>\n\n\n\n<ul><li>Production\nof goods<\/li><li>Transaction\nof &nbsp;goods or services<\/li><li>Goods\navailable in the warehouses or in the internal facility. <\/li><li>Availed ITC,\ni.e. Input tax credit&nbsp;<\/li><li>Output tax\npayable&nbsp;<\/li><li>Output tax\npaid&nbsp;<\/li><li>Other\nparticulars&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"GST_Turnover_Reconciliation_Vs_Revenue_Recognition\"><\/span>GST Turnover Reconciliation Vs Revenue Recognition<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>Examination of turnover rate wise to ensure correctness of GST liability, which are as follows:-&nbsp; <\/strong><\/em><\/p>\n\n\n\n<ul><li>Determine if HSN and rates\nare accurate. <\/li><li>GST impact on year end\ndiscounts<\/li><\/ul>\n\n\n\n<p>Volume discounts passed on end of the year decreases\nthe taxable value as well as GST liability. Auditor to make sure that an\nagreement was entered into prior supply started and the discount can be linked\nto relevant invoices. If not, discount will not affect the taxable value.<\/p>\n\n\n\n<p><strong>Examining\nother income to Evaluate GST Liability scrap sales <\/strong><\/p>\n\n\n\n<p>Whether GST has been charged on the sales of fixed\nassets, where income tax credit has not been availed, GST liability would be\nimposed on the gross sale consideration. However, in cases where income tax\nreturn has been availed and the asset is sold in the time span of five years,\nthe GST payable will be greater than (a) sale consideration and (b) reversal of\nproportionate ITC claimed.&nbsp; <\/p>\n\n\n\n<p><strong>GST liability = higher of (a) and (b)<\/strong><\/p>\n\n\n\n<p>Settle the income tax return claimed on expenditure\nwith the amount debited to P&amp;L account. For companies following Indian\nAccounting Standards, having lease rental payables\u00d8 for long term lease (&gt;\n1 year), there will not be a line item in P&amp;L as \u201cLease charge\u201d, as the\nsame is accounted under Financial cost. This will form a line item in\nsettlement of expenses debit in regards the ITC claimed. <\/p>\n\n\n\n<ul><li>Evaluation of expenses heads for the accounting of Reverse Charge Mechanism (RCM) liability and payment thereof.<\/li><li>Check whether Accounting for TDS receivable has been accepted online and return filed. <\/li><li>Determine whether the claims regarding the return have been registered in time, as per the RBI\u2019s guidelines. <\/li><li>Analyze payables to make sure that all invoice on which <a href=\"https:\/\/corpbiz.io\/income-tax-return-filing\"><strong>income tax return<\/strong><\/a> has been claimed have been paid within eighty days. Else liability plus interest to be rendered and ITC to be reversed.<\/li><li>Go through the export receivables w.r.t supply of service to determine the presence of any amount outstanding for more than one year from the date of export. <\/li><li>In such conditions, GST is payable on the liability is to be provided or on amounts not realized along with the interest. <\/li><li>Status of refund claims (pending ones). <\/li><li>Consolidation of GST based figures in financials.<\/li><li>Net off ITC\/TDS and GST liability excess cash paid- Final balance to be mentioned under other current liabilities or assets.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The finalization of the account refers to the closure of entry in the book of account for a particular financial year.&nbsp; The process of finalization of account starts from the preparation of <em><strong>Trial Balance<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Trial_balance\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> based on the ledger account. <\/p>\n\n\n\n<p>So this is all about the finalization of account. If you still have some issues in relating GST accounting aspect with the said topic, drop queries in the comment section. The <a href=\"https:\/\/corpbiz.io\/\"><strong>CorpBiz\u2019s<\/strong><\/a> professional will responds to your queries in no times. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/interest-on-the-late-gst-payment-would-imposed-on-net-cash-tax-liability\/\">Interest on the Late GST Payment would imposed on Net Cash Tax Liability<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The advent of Goods and Services Tax has impacted many sectors across the country in one way or another. It has also triggered the changes in the finalization of the account. Unlike older regimes, account treatment of GST is easier and less complicated due to the presence of fewer taxes. However, institutions are required to [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":19954,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[16],"tags":[1235],"acf":{"service_id":"96"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":10417,"readingTime":6,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19911"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=19911"}],"version-history":[{"count":5,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19911\/revisions"}],"predecessor-version":[{"id":19955,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19911\/revisions\/19955"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/19954"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=19911"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=19911"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=19911"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}