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WHICH IS BETTER BETWEEN ACCOUNTING FOR GST ON A CASH BASIS AND ACCOUNTING FOR GST ON A NON-CASH/ACCRUAL BASIS

24
May

The two methods of accounting for GST are cash-basis and accrual basis. The method you use will affect when you must report GST. The primary difference between cash and accrual basis of accounting is the timing of when revenue and expenses are recorded. Cash basis accounting records the transaction for revenue and expenses when the cash is received or payment is made. On the other hand, accrual basis accounting reports revenue when the income is earned and reports expenses when the expense occurs.

Accounting for GST on a Cash basis 

• Small businesses that have an aggregated turnover of less than $2 million;
•  GST on the business activity statement that covers the period in which the sales and purchases were made;
• Business is not operating but an enterprise is carried with a GST turnover of $2 million or less;

Accounting for GST on a Non-Cash/ Accrual basis

• Mostly the larger businesses that have an annual GST turnover of $2 million or more;
• Lodging business tax returns based on income and expenses when it is invoiced;  
• Accrual basis accounting allows analysing the current financial movements so that the future sales revenue and expenses can be estimated easily.
  However, in the cash basis accounting for GST it is easier to handle the cash flow, as the activity statements and actual money flow aligns closely. On the other hand, the accrual basis accounting for GST is payable during the period when you will receive the invoice. You can get an advantage when you claim GST even on unpaid expenses upfront.