Complete business activity and instalment activity statements in Australia

Cash or Accrual Accounting

There are two accounting methods used to account for GST cash and non-cash (accruals).

Cash Accounting

Under cash accounting, the taxing point is when cash passes from a buyer to a seller. Therefore, a GST liability arises only when payment is received for a sales tax invoice (GST Collected) and input tax credits (GST Paid) arise only when purchase tax invoices are paid to suppliers.

Accrual Accounting

Under accrual accounting, the taxing point is at the time of the transaction, regardless of whether or not payment is made at the point of sale. Therefore, a GST liability arises when a tax invoice is issued for a sale (GST Collected) and input tax credits (GST Paid) arise when a supplier issues a tax invoice for purchases.

The method used is determined by the turnover of the business.

The business's annual turnover is less than $10 million.

The entity is not a business and its GST turnover is $2 million or less.

Income tax is accounted for on a cash basis.

The business carried on a kind of enterprise the ATO has agreed can account for GST on a cash basis regardless of GST turnover.

The business is an endorsed charitable institution, trustee of an endorsed charitable fund, gift deductible entity or government school, regardless of GST turnover.

In either case, the business cannot normally claim an input tax credit unless it also has a valid tax invoice for the purchase at the time of lodging the BAS.

The entities above may still be eligible for simpler GST reporting, regardless of their accounting methods, if they meet the relevant GST turnover requirement (under $10 million).

Q1. What are the two methods available for accounting for GST?

In your own words, explain the difference between the two methods.