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GST: How to record purchases with simplified accounting method (snapshot method)

  • Member in Employment
  • 3 posts
  • # 119005

Hi guys, I have a client who runs a restaurant. They are going to start using simplified accounting method when recording GST for purchases (using a purchases snapshot method). How do you record GST in this instance? I can think of a number of options:

  

1. record each purchase as including GST and then raise a journal at the end of the period

 

 

2. Split each purchase transaction into two lines - with GST and without, according to their percentage from the snapshot method

 

 3. Create a new tax rate (am I allowed to do that?) and record each purchase with this new tax rate

 

 

What is the correct way to record this? Has anyone come across this before? The client finds it too difficult to keep track of each individual purchase receipt.

  • 15 posts
  • # 119171

There are five SAM options to choose from;

1. Business norms method – uses standard percentages to both sales and purchases

This is applicable to certain food businesses with $2 million or less GST turnover and does not have reliable point-of-sale equipment. This method is also the simplest way to calculate GST. Refer to the table below provided by ATO (Australian Taxation Office) for the specific businesses and GST-free percentages to apply.

2. Stock purchases method – uses a sample of purchases

This method is specific for resellers. Resellers are those who buy products and resell them in its same form, without any manufacturing or transformation involved. The business should also be at $2 million or less GST turnover and does not have reliable point-of-sale equipment. Examples are convenience stores, grocery stores, service stations, and health food shops.

3. Snapshot method – uses a snapshot of sales and purchases.

This method is a lot similar to the stock purchases method, but instead of accounting for just the purchases, snapshot method accounts for both sales and purchases. This method applies to entities operating food and retail business with $2 million or less GST turnover and does not have reliable point-of-sale equipment like butchery, cake shop, health food shop, kiosks, sandwich bars, and grocery stores.

4. Sales percentage method – compute for the percentage of GST-free sales and apply this to the purchases

This is most applicable to almost exclusively resellers like convenience stores, grocery stores, and supermarkets. To qualify for this method, your GST turnover should be $2 million or less, converts 5% or less of your products, has a reliable point-of-sale equipment, and is not a petrol station. To get the GST-free tax rate, examine the sales recorded by the point-of-sale equipment. Take the percentage of GST-free sales against the total sales. Apply the same percentage when calculating for the GST-free purchases.

5. Purchases snapshot method – uses a snapshot of purchases to calculate GST credits.

This method of accounting GST is similar to the snapshot method, but instead of accounting both sales and purchases, only purchases are examined and calculated. This is most applicable to food businesses that convert products like restaurants, caterers, and cafes and with GST turnover of $2 million or less. These businesses buy raw materials and food products like meat, vegetables, and rice. And then converts them into food and meals.

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