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tracing of gst transactions in allowance method for writing off bad debts from the initial credit sale

5 August, 2015 - 14:41

GST , if applicable, according to the accrual principle, is collected at the time of a credit sale, so when the accounts receivable is debited to record the credit to sales account, it is also debited to record the GST cash receivable, and GST liability account is credited, at the time of the sale.

  1. A/R - debit = sale amount + GST amount
  2. Sales - credit sale amount
  3. GST (Collections/Liability) - credit GST amount

In a good debtor situation, on the debtor paying,

  1. the cash in bank account is debited for the sale amount + gst amount, and
  2. the accounts receivable is credited for the equivalent total amount.

GST can be regarded as an accrual item, and not a cash item, and is related to the sale action, not the cash collection.

In a bad debtor situation, when a bad debt is written off, it is certain the GST that was owing can't be collected either, so the transaction is :-

  1. to debit the allowance for bad debts for the sale amount,
  2. debit the GST liability account for the GST amount, and
  3. credit the account receivable for the sum of sale+GST,

to acknowledge the receivable can't be collected.