GST Setup – QuickBooks

Software: QuickBooks 2011 (Canadian edition)

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GST setup consists of four different parts; they are Tax Account, Tax Agent, Tax Item and Tax Code.

First, you need to setup the Tax Account. To simplify the process, you can consider setting up one single Tax account – GST Payable, to capture both the input and output tax. This account acts as a control account and will be in Other Current Liability type of account. Since there is only one account for both input and output tax, the value will be in negative when there is a claim of GST from tax department (asset on liability account).

For those users who prefer to have input tax and output tax separated may consider setting two accounts; that is GST Input (Other Current Asset account), GST Output (Other Current Liability account). This method is a traditional way of managing GST as you can view the input tax and output tax separately in Balance Sheet report.

After setting up the GST account, user needs to set up the Tax Agent — IRAS. This is a supplier type of name. User needs to check the check box for Tax Agent when setting up the name. In the Tax Agent profile, user can set the quarter ending for GST, Tax label and the Tax Accounts associated for Sales (Output) and Purchase (Input) with the Tax Agent.

Tax Item is one of the item types in your item list. Every Tax Code requires two Tax Items, one of the Tax item capturing GST in sales transaction (Output) and the other for capturing GST during purchase (Input tax). For example, if you need to create a standard rated (7%) GST code, you can consider to create two GST Tax items such as “G07-P” and “G07-S”.  Associate G07-P Tax Item with Tax on Purchase (“G” is GST, “07” is 7% rated and “P” represent Purchase) and G07-S with Tax on Sales (“G” is GST, “07” is 7% and “S” represent Sales).

Lastly, you need to create a GST Code, G07, from the Sales Tax Code list. Associate both G07-P and G07-S Tax Item with this newly created GST code – G07.

You have completed the setting up of GST code, so, how are these Tax Account, Tax Agent, Tax Item and Tax Code related to your transactions?

When Sales Invoices or Bill transactions was created with GST Code (G07). QuickBooks will then pickup either G07-S Tax Item (when G07 code was used in Sales Invoice) or G07-P Tax Item (when G07-P code was being used in the Bills) that was associated with the Tax code.

Since the Tax item was associated with the Tax Agent, it will group the tax amount with the Tax Agent when processing GST and the Tax Item will published under Tax on Sales and Tax on Purchase section of the GST report. Besides, the associated Tax Account, which was in the Tax Agent will get updated and presented in the Balance Sheet report.

In short, when using a Tax code, it will link to Tax item, then to Tax Agent and follow by Tax Account(s).