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VCE Accounting (Year 12) · Accounting Fundamentals · 10m read

Source Documents and GST

Ever wondered how businesses prove they actually sold something? Source documents are the paper trail (or digital record) that track every dollar — think invoices, receipts, and delivery dockets. GST, or Goods and Services Tax, is that 10% levy added to most things you buy in Australia, and it's crucial because getting it wrong costs marks on your VCE exam and money in real life.

Learning objective: Identify source documents and calculate GST correctly.

By the end of this lesson you can:

  • I identify invoice, receipt, cheque butt, bank statement, memo.
  • I calculate GST using the 10% or 1/11 rule.
  • I distinguish GST Payable from GST Receivable.

Source documents are receipts for the truth. Every journal entry needs proof — an invoice, receipt or memo — like evidence in a court case.

Documents and GST mechanics

SOURCE DOCUMENTS:
• SALES INVOICE (given) — record of credit sale; debit Debtor, credit Sales + GST Payable.
• PURCHASE INVOICE (received) — record of credit purchase.
• RECEIPT — evidence of cash received.
• CHEQUE BUTT / EFT — evidence of cash paid.
• BANK STATEMENT — external record of bank account activity.
• MEMO — internal note (e.g. stock lost, balance-day adjustment).

Source documents provide VERIFIABILITY (qualitative characteristic).

GST RULES (Australia):
• Rate = 10%.
• On ex-GST price: multiply by 0.10 to get GST.
• On GST-inclusive price: divide by 11 to get GST; divide by 1.1 to get ex-GST.

GST ACCOUNTS:
• GST CLEARING (often used in VCE): a liability that nets GST collected against GST paid.
• Credits to GST (liability+) when business charges GST on sales.
• Debits to GST (liability−) when business pays GST on purchases.
• Balance payable to ATO quarterly via BAS.

EXAMPLES:
• Sale for $660 incl. GST → GST = $60; Sales revenue = $600.
• Purchase of stock $330 incl. GST → Stock $300; GST Clearing (debit) $30.

COMMON ERRORS:
• Adding GST on top of a GST-inclusive figure.
• Treating GST collected as revenue (it's a liability owed to ATO).

GST fast facts

  • 10% rule: Ex-GST × 1.1 = GST-incl.
  • 1/11 rule: GST-incl ÷ 11 = GST.
  • Payable vs Receivable: Collected on sales = Payable. Paid on purchases = Receivable.
  • Single GST Clearing: Most VCE uses one GST Clearing account netting both.
  • Not revenue: GST is a liability owed to ATO — not income.

Quick reference

| Document | Transaction |
|---|---|
| Tax invoice | Credit sale/purchase |
| Receipt | Cash received |
| Cheque butt/EFT record | Cash paid |
| Memo | Internal transactions |
| GST | Price ÷ 11 if GST-inclusive |

Worked example (Easy)

Split a $847 invoice into sales and GST.

  1. GST calc. $847 ÷ 11 = $77.
  2. Ex-GST. $847 − $77 = $770.
  3. Journal. Debit Debtor $847, Credit Sales $770, Credit GST Clearing $77.

Answer: GST $77; ex-GST sale $770.

Worked example (Hard)

A business receives a tax invoice for $2,200 (GST-inclusive) for advertising services. The business pays immediately by electronic transfer. Identify the source document, calculate the GST, and record the transaction in the correct journal with a full narration.

  1. 1. Identify the source document. The source document is the tax invoice from the advertising company and the electronic funds transfer (EFT) receipt. The tax invoice must show the supplier's ABN, the GST amount, and the words "Tax Invoice" to be valid for GST purposes.
  2. 2. Calculate GST. GST-inclusive: $2,200. GST = $2,200 ÷ 11 = $200. GST-exclusive cost: $2,200 - $200 = $2,000. The $2,000 is the advertising expense; the $200 is GST Receivable (recoverable from the ATO).
  3. 3. Select the correct journal. This is a cash payment (paid immediately by EFT), so it goes in the Cash Payments Journal — NOT the Purchases Journal (which is for credit purchases of inventory only) and NOT the General Journal.
  4. 4. Record the entry. Cash Payments Journal: Date | Particulars: Advertising Expense | Bank (Cr) $2,200 | Advertising Expense (Dr) $2,000 | GST (Dr) $200. Narration: "Paid advertising services per tax invoice #xxx, EFT."

Answer: Source document: tax invoice + EFT receipt. Journal: Cash Payments Journal. Dr Advertising Expense $2,000 | Dr GST Clearing $200 | Cr Bank $2,200. The expense is recorded GST-exclusive; GST paid is a receivable.

Common mistakes

  • Recording a cash purchase of services in the Purchases Journal The Purchases Journal is ONLY for credit purchases of inventory. Cash purchases go in the Cash Payments Journal. Service expenses (even on credit) may go in the General Journal. Fix: Ask two questions: (1) Is it inventory? (2) Is it on credit? If YES to both → Purchases Journal. If cash payment → Cash Payments Journal. If credit but not inventory → General Journal.
  • Not including GST as a separate line in journal entries If the business is GST-registered, GST must always be separated. Failing to split out GST means the expense is overstated and the GST Clearing account is incorrect. Fix: Every GST-inclusive transaction has THREE components: the GST-exclusive amount (expense or revenue), the GST amount (to GST Clearing), and the total (Bank or Accounts Payable/Receivable).

How GST Clearing works — why it matters for BAS reporting

The GST Clearing account is one of the most misunderstood accounts in VCE Accounting, yet it is central to understanding how businesses interact with the ATO.

When a business makes a sale (collects GST from customers), the GST collected is a liability — the business owes it to the ATO. This is recorded as a credit to GST Clearing. When a business makes a purchase (pays GST to suppliers), the GST paid is an asset — the ATO owes it back to the business. This is recorded as a debit to GST Clearing.

At the end of each Business Activity Statement (BAS) period (monthly or quarterly), the business calculates the net GST position: GST Collected (credits) minus GST Paid (debits). If collections exceed payments, the business owes the ATO (the account has a credit balance → liability). If payments exceed collections, the ATO owes the business a refund (the account has a debit balance → asset).

For example: GST Collected on sales = $5,000 (Cr). GST Paid on purchases = $3,000 (Dr). Net = $2,000 Cr → the business owes $2,000 to the ATO. When paid: Dr GST Clearing $2,000 / Cr Bank $2,000.

The key principle is that GST never affects profit. GST collected is not revenue (it belongs to the ATO). GST paid is not an expense (it is recoverable from the ATO). Both are balance sheet items — either assets (receivable) or liabilities (payable). This is why expenses and revenues are always recorded GST-exclusive.

In the exam, always show GST Clearing as a separate line in every journal entry involving a GST-registered transaction. Forgetting to separate GST is one of the most common mark-losing errors.

Practice questions

  1. A cheque butt is a source document for:

    1. Credit sale
    2. Cash received
    3. Cash paid
    4. Internal adjustment

    (1 marks)

  2. An ex-GST figure of $200 becomes what GST-inclusive?

    1. $210
    2. $220
    3. $240
    4. $202

    (1 marks)

  3. A receipt is issued for $1,320 incl. GST for services provided. Write the journal entry.

    (3 marks)

Summary

  • Identify invoice, receipt, cheque butt, bank statement, memo.
  • Calculate GST using the 10% or 1/11 rule.
  • Distinguish GST Payable from GST Receivable.

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