Lesson

GST Journal Entries

Learn how GST is recorded in purchases, sales, returns, and GST set-off entries.

Understand the basic accounting treatment of GST in journal entries without going into tax-law depth.

Beginner12-15 min

Concept explanation

Understand the idea first

What is GST in accounting?

GST is tax added to the value of goods or services.

In accounting, we record GST separately so that the business can know how much GST it paid and how much GST it collected.

When a business buys goods, it pays GST.

When a business sells goods, it collects GST.

The GST paid on purchases is called Input GST.

The GST collected on sales is called Output GST.

Simple line: Input GST is GST paid. Output GST is GST collected.

Input GST and Output GST

Input GST means GST paid on purchases or expenses.

Example: Riya buys goods worth Rs.10,000 plus GST Rs.1,800.

She paid GST, so Input GST increases.

Input GST is treated like an asset or claim because the business can adjust it against Output GST.

Simple line: Input GST is debited.

Output GST means GST collected on sales or income.

Example: Riya sells goods worth Rs.10,000 plus GST Rs.1,800.

She collected GST from the customer, so Output GST increases.

Output GST is a liability because the business has to pay it after adjusting Input GST.

Simple line: Output GST is credited.

Simple story

Riya runs a mobile accessories shop.

Day 1: she buys phone covers for Rs.10,000 plus GST 18%.

Goods value is Rs.10,000, GST is Rs.1,800, and total paid is Rs.11,800.

This GST Rs.1,800 is Input GST because she paid it on purchase.

Day 2: she sells accessories for Rs.20,000 plus GST 18%.

Sales value is Rs.20,000, GST is Rs.3,600, and total received is Rs.23,600.

This GST Rs.3,600 is Output GST because she collected it on sale.

At the end, Output GST Rs.3,600 minus Input GST Rs.1,800 gives GST payable Rs.1,800.

Riya sets off Input GST against Output GST and pays only the balance.

GST on Purchase

Rule: Purchases is debited with goods value, Input GST is debited with GST amount, and Cash/Bank/Creditor is credited with total amount.

Example: Bought goods for cash Rs.10,000 plus GST 18%.

GST = Rs.10,000 x 18% = Rs.1,800.

Total = Rs.11,800.

Journal Entry: Purchases A/c Dr. Rs.10,000 / Input GST A/c Dr. Rs.1,800 / To Cash A/c Rs.11,800.

Purchases increased, so Purchases is debited.

Input GST is GST paid and claimable, so Input GST is debited.

Cash went out, so Cash is credited.

Credit purchase example: Bought goods from Amit Rs.10,000 plus GST 18%.

Journal Entry: Purchases A/c Dr. Rs.10,000 / Input GST A/c Dr. Rs.1,800 / To Amit A/c Rs.11,800.

GST on Sale

Rule: Cash/Bank/Debtor is debited with total amount, Sales is credited with goods value, and Output GST is credited with GST amount.

Example: Sold goods for cash Rs.10,000 plus GST 18%.

GST = Rs.10,000 x 18% = Rs.1,800.

Total = Rs.11,800.

Journal Entry: Cash A/c Dr. Rs.11,800 / To Sales A/c Rs.10,000 / To Output GST A/c Rs.1,800.

Cash came in, so Cash is debited.

Sales income increased, so Sales is credited.

Output GST is GST collected and payable, so Output GST is credited.

Credit sale example: Sold goods to Raju Rs.10,000 plus GST 18%.

Journal Entry: Raju A/c Dr. Rs.11,800 / To Sales A/c Rs.10,000 / To Output GST A/c Rs.1,800.

CGST, SGST and IGST in simple words

Sometimes GST is split into CGST and SGST.

Example: GST 18% may be split as CGST 9% and SGST 9%.

Purchase example: Bought goods Rs.10,000 plus CGST 9% and SGST 9%.

Journal Entry: Purchases A/c Dr. Rs.10,000 / Input CGST A/c Dr. Rs.900 / Input SGST A/c Dr. Rs.900 / To Cash A/c Rs.11,800.

Sale example: Sold goods Rs.10,000 plus CGST 9% and SGST 9%.

Journal Entry: Cash A/c Dr. Rs.11,800 / To Sales A/c Rs.10,000 / To Output CGST A/c Rs.900 / To Output SGST A/c Rs.900.

For some transactions, GST may be recorded as IGST.

Purchase with IGST: Purchases A/c Dr. Rs.10,000 / Input IGST A/c Dr. Rs.1,800 / To Cash A/c Rs.11,800.

Sale with IGST: Cash A/c Dr. Rs.11,800 / To Sales A/c Rs.10,000 / To Output IGST A/c Rs.1,800.

Keep the idea simple: input accounts are debited, output accounts are credited.

When amount includes GST

Sometimes the total amount already includes GST.

Example: Purchased goods for Rs.11,800 including GST 18%.

Here Rs.11,800 is total, so we need to find goods value and GST amount.

Formula: Taxable value = Total amount x 100 / (100 + GST rate).

Taxable value = Rs.11,800 x 100 / 118 = Rs.10,000.

GST = Rs.11,800 - Rs.10,000 = Rs.1,800.

Journal Entry: Purchases A/c Dr. Rs.10,000 / Input GST A/c Dr. Rs.1,800 / To Cash A/c Rs.11,800.

Important: if the rate is not given, GST-inclusive amount cannot be split safely.

Simple line: For GST-inclusive amount, GST rate is needed.

GST Set-off

At the end, the business compares Output GST and Input GST.

Output GST is GST collected on sales.

Input GST is GST paid on purchases.

If Output GST is more, the balance is paid.

Example: Input GST Rs.5,000 and Output GST Rs.8,000.

Set-off entry: Output GST A/c Dr. Rs.5,000 / To Input GST A/c Rs.5,000.

Balance payable is Rs.3,000.

Payment entry: Output GST A/c Dr. Rs.3,000 / To Bank A/c Rs.3,000.

Combined simple entry: Output GST A/c Dr. Rs.5,000 / Output GST A/c Dr. Rs.3,000 / To Input GST A/c Rs.5,000 / To Bank A/c Rs.3,000.

Simple line: Input GST reduces Output GST payable, and only the balance is paid.

GST on returns

Purchase Return with GST means goods purchased earlier are returned to supplier, so Input GST also reduces.

Example: Returned goods to Amit Rs.5,000 plus GST 18%.

Journal Entry: Amit A/c Dr. Rs.5,900 / To Purchase Return A/c Rs.5,000 / To Input GST A/c Rs.900.

Liability to Amit reduces, purchase return is credited, and Input GST is reduced.

Sales Return with GST means customer returns goods, so Output GST also reduces.

Example: Raju returned goods Rs.5,000 plus GST 18%.

Journal Entry: Sales Return A/c Dr. Rs.5,000 / Output GST A/c Dr. Rs.900 / To Raju A/c Rs.5,900.

Sales return is debited, Output GST collected earlier reduces, and Raju's balance reduces.

Visual flow

Mental model

Purchase with GST

Purchases + Input GST

Pay cash/bank/creditor

Sale with GST

Sales + Output GST

Set off Input GST

Pay balance GST

Solved examples

See the rule in action

Example 1

Bought goods for cash Rs.20,000 plus GST 18%.

GST = Rs.3,600
Total = Rs.23,600
Purchases A/c Dr. Rs.20,000
Input GST A/c Dr. Rs.3,600
To Cash A/c Rs.23,600

Purchases is debited with goods value.

Input GST is debited because GST was paid.

Example 2

Sold goods for cash Rs.15,000 plus GST 18%.

GST = Rs.2,700
Total = Rs.17,700
Cash A/c Dr. Rs.17,700
To Sales A/c Rs.15,000
To Output GST A/c Rs.2,700

Cash is debited with total received.

Output GST is credited because GST was collected.

Example 3

Purchased goods Rs.11,800 including GST 18% for cash.

Taxable value = Rs.10,000
GST = Rs.1,800
Purchases A/c Dr. Rs.10,000
Input GST A/c Dr. Rs.1,800
To Cash A/c Rs.11,800

The total includes GST.

The GST rate is needed to split value and tax.

Example 4

Sold goods to Raju Rs.10,000 plus GST 18%.

GST = Rs.1,800
Total = Rs.11,800
Raju A/c Dr. Rs.11,800
To Sales A/c Rs.10,000
To Output GST A/c Rs.1,800

Raju is debited because amount is receivable from customer.

Sales and Output GST are credited separately.

Example 5

Set off Input GST Rs.5,000 against Output GST Rs.8,000 and paid balance through bank.

Output GST A/c Dr. Rs.5,000
Output GST A/c Dr. Rs.3,000
To Input GST A/c Rs.5,000
To Bank A/c Rs.3,000

Input GST reduces Output GST payable.

The remaining GST payable is paid through bank.

Avoid these

Common Mistakes

Debiting Output GST on sales

Crediting Input GST on purchases

Adding GST to Purchases instead of recording Input GST separately

Forgetting GST in total amount

Treating Input GST as expense

Treating Output GST as income

Trying to split GST-inclusive amount without GST rate

Forgetting to reduce GST during returns

Confusing CGST/SGST with IGST

Paying full Output GST without setting off Input GST

Practice prompts

Try It Yourself

Bought goods for cash Rs.10,000 plus GST 18%. Expected: Purchases Dr Rs.10,000, Input GST Dr Rs.1,800, To Cash Rs.11,800.

Sold goods for cash Rs.20,000 plus GST 18%. Expected: Cash Dr Rs.23,600, To Sales Rs.20,000, To Output GST Rs.3,600.

Purchased goods Rs.11,800 including GST 18% for cash. Expected: Purchases Dr Rs.10,000, Input GST Dr Rs.1,800, To Cash Rs.11,800.

Sold goods to Raju Rs.10,000 plus GST 18%. Expected: Raju Dr Rs.11,800, To Sales Rs.10,000, To Output GST Rs.1,800.

Bought goods from Amit Rs.5,000 plus GST 18%. Expected: Purchases Dr Rs.5,000, Input GST Dr Rs.900, To Amit Rs.5,900.

Goods returned by Raju Rs.5,000 plus GST 18%. Expected: Sales Return Dr Rs.5,000, Output GST Dr Rs.900, To Raju Rs.5,900.

Returned goods to Amit Rs.5,000 plus GST 18%. Expected: Amit Dr Rs.5,900, To Purchase Return Rs.5,000, To Input GST Rs.900.

Set off Input GST Rs.4,000 against Output GST Rs.6,000 and paid balance through bank. Expected: Output GST Dr Rs.4,000, Output GST Dr Rs.2,000, To Input GST Rs.4,000, To Bank Rs.2,000.

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