BOOKS OF ORIGINAL ENTRY – JOURNAL

Journal is the primary book of recording the business transactions. The transactions are
recorded in the books of original entries or Journal in form of Double entry system i.e. in form of
Debit record (Dr). and Credit record (Cr).

All of the transactions are recorded in a chronological order i.e. in a date wise sequence. With
the help of it we are able to prepare our ledger accounts, trial balance and at last the financial
statements of an organisation. These transactions are recorded in a particular format which is
shown below:

FORMAT OF JOURNAL-

Journal in the books of _ _ _ _ _ _

DATE PARTICULARS L.F. DR. (₹) CR. (₹)

XXX _________ A/c XXXX

DR. XXXX
To ____________ A/c
(Being ______________________ )

Steps in Journalising-
1. Ascertain the accounts that are affected by a transaction.

2. Ascertain the nature of accounts affected.

3. Ascertain the account to be debited and credit by applying the rules of debit and credit.

4. Ascertain the amount by which the accounts are to be debited and credited.

5. Write the date and the month of the transaction in the date column and the year at the
top.

6. Write in the particulars column name of the account to be debited. Along with of the
account, abbreviation Dr. and write the amount to be debited in the debit amount
column. Similarly write in the particulars column name of the account to be credited by
the word ‘To’. Write the amount to be credited in the credit column.
 7. Write brief description of the transaction starting from the next line in the Particulars
column which is called Narration.

8. Draw a line across the particulars column to separate one journal entry form the other.

Double Entry System – Rules for Debit and Credit

Meaning of Double Entry System

In this system, every business transaction is having a twofold effect of benefit giving and
benefit receiving aspects. The recording is made on the basis of both these aspects.
Double Entry is an accounting system that records the effects of transactions and other
events in at least two accounts with equal amounts of debit and credit.

TRADITIONAL APPROACH OF JOURNAL ENTRIES

Every aspect is having its own rules & regulations therefore accounting is also based on some
specified rules. These rules are called as Golden Rules of Accounting.

There are three golden rules which have to be followed in accounting.

1. Rule of Personal Account

2. Rule of Real Account
3. Rule of Nominal Account

Rule of Personal Account: Debit the Receiver,

Credit the Giver

This rule is applicable only on the persons and as per this rule there are three types of persons.
Personal account may have Debit Balance and Credit balance.

a. Natural Persons – Human Beings or Individuals. For example – Ram, Shyam, Mohan
etc.

b. Artificial Persons – Companies, Firm, Bank, Co-operative Society, Not-for-profit

Organisations etc. For example – Reliance Industries Limited, ABC & Co., HDFC Bank,
Navjeevan Co-operative society, Smile Foundation etc.
 c. Representative of Persons – When any individual person or artificial person are being
paid in advance or to be paid later or any sum received in advance before the
completion of their work are to be considered as representative of persons. In other
words if any prefix or suffix is being added along with any nominal account then it will be
considered as representative of personal account. For example Outstanding Expenses,
Prepaid Expenses, Accrued Income & Unearned Income.

Rule of Real Account: Debit What Comes In,

Credit What Goes Out

This rule is applicable on the property or assets which may be tangible or intangible in nature
and can be measured in terms of money and being acquired by the business. For example –
Cash, Land & Building, Plant & Machinery, Long term Investments, Goodwill, Patents,
Trademark and Copyright etc. Real Accounts are always having debit balance.

Rule of Nominal Account: Debit All Expenses & Losses,

Credit All Incomes and Gains

This rule is applicable on the expenses incurred and income received by the business.
Expenses are having always Debit balance whereas Incomes are having always Credit balance.
Example of Expenses – Discount allowed, Salary paid, Rent paid, Interest paid etc. Example of
Incomes – Discount Received, Commission received, Interest Received etc.

Example : ANALYSIS OF BUSINESS TRANSACTIONS:

(i) Mr. Subhash started business with cash ₹ 10,000.

(ii) Goods purchased for cash ₹ 16,000.
(iii) Sold goods for cash ₹ 4,200.
(iv) Salaries paid ₹ 5,000.
(v) Purchased Machinery from HS Tools ₹ 24,000.
(vi) Furniture purchased ₹ 5,600.
(vii) Withdrew cash for personal use ₹ 3,000.
(viii) Opened a bank account ₹ 12,000.
Solution:

Transactions Analysis Table

Two Type of Dr. Cr.

Transaction Dual Aspect Account Account Rule (₹) (₹)

Cash comes Cash A/c Real Dr. what comes

1. Started business in in 10,000
with cash Subhash is Capital A/c Personal Cr. The giver
giver 10,000

Goods comes Purchases Nominal Dr. all expenses

2. Goods in A/c 16,000
purchased for Cash goes out Cash A/C Real Cr. What goes
cash out 16,000
Cash comes Cash A/C Real Dr. what comes
3. Goods sold for in in 4,200
cash Goods goes Sales A/c Nominal Cr. All incomes
out 4,200
Salary is an Salary A/c Nominal Dr. all expenses
4. Salaries paid expense 5,000
Cash goes out Cash A/C Real Cr. What goes
out 5,000
5. Purchased Machinery Machinery Real Dr. what comes
Machinery from comes in A/c in 24,000
HS Tools HS Tools is HS Tools Personal Cr. The giver
given 24,000
6. Furniture Furniture Furniture Nominal Dr. all expenses
Purchased comes in A/c 5,600
Cash goes out Cash A/C Real Cr. What goes
out 5,600
7. Withdrew cash Owner is Drawings Personal Dr. the receiver 3,000
for personal use receiver A/c
Cash goes out Cash A/C Real Cr. What goes
out 3,000
8. Opened a bank Bank is Bank A/c Personal Dr. the receiver 12,000
account receiver
Cash goes out Cash A/C Real Cr. What goes 12,000
out

Accounting Equation Approach for Debit and Credit (Modern Approach)-

The accounting equation is a statement of equality between the debits and the credits.
Under accounting equation approach, rules of debit and credit depend on the nature of
an account. For this purpose, all the accounts are classified into the following five
categories under this approach:

1. Assets Accounts
2. Capital Account
3. Liabilities Accounts
 4. Revenue or Incomes Accounts
5. Expenses or Losses Accounts

If there is an increase or decrease in one account, there will be an equal decrease or

increase in another account. Accordingly, the following rules of debit and credit in
respect of the various categories of accounts can be obtained:

1) Assets Accounts: Increase in the amount of assets is recorded on the debit

side of the Assets Accounts and decrease in the amount of assets is recorded on
the credit side of the Assets Accounts.

Dr. Assets Account Cr.

Increase in asset, recorded on (₹) Decrease in asset, recorded on (₹)

this side this side

2) Capital Account: Increase in the amount of capital is recorded on the credit side
and decrease in the amount of capital is recorded on the debit side of the Capital
Account. Suppose, the proprietor introduces the additional capital in the
business, the Capital account will be credited. Similarly, if the proprietor
withdraws some money for his personal use, then Capital account or Drawings
account will be debited.

Dr. Capital Account Cr.

Decrease in capital, recorded on (₹) Increase in capital, recorded on (₹)

this side this side

3) Liabilities Account: Increase in the amount of liabilities is recorded on the credit

side of the Liability account and decrease in the amount of liabilities is recorded
on the debit side of the Liability Account.

Dr. Liability Account Cr.

Decrease in liability, recorded on (₹) Increase in liability, recorded on (₹)

this side this side

4) Revenue or Income Accounts: All increases in the incomes are recorded on

the credit side of the concerned Income account and all reductions in any gain or
income are recorded on the debit side of the concerned Income Account.
Dr. Revenue or Income Account Cr.

Decrease in income, recorded on (₹) Increase in income, recorded (₹)

this side on this side

5) Expenses or Losses Account: All increases in the losses and expenses are
recorded on the debit side of the concerned Expense account and all reductions
in the losses and expenses are recorded on the credit side of the concerned
Expense Account.

Dr. Expense or Loss Account Cr.

Increase in expenses, recorded (₹) Decrease in expenses, (₹)

on this side recorded on this side

These rules may be summarized for Journal entries as below:

1. Increase in assets is debited; decrease in assets is credited.

2. Increase in capital is credited; decrease in capital is debited.
3. Increase in liabilities is credited; decrease in liabilities is debited.
4. Increase in incomes and gains is credited; decrease in incomes and gains is
debited.
5. Increase in expenses and losses is debited; decrease in expenses and losses is
credited.

Example 1: RULES OF DEBIT AND CREDIT: On what side, increase in the following
accounts will be recorded:

1. Cash 2. Machinery
3. Debtors 4. Creditors
5. Bank Overdraft 6. Capital
7. Interest received 8. Salaries paid

Solution:

1. Debit - Asset 2. Debit - Asset

3. Debit - Asset 4. Credit - Liability
5. Credit - Liability 6. Credit - Capital
7. Credit - Revenue 8. Debit – Expense
Example 2: RULES OF DEBIT AND CREDIT: On what side, decrease in the following
accounts will be recorded:

1. Furniture 2. Outstanding salaries

3. Capital 4. Prepaid expenses
5. Machinery 6. Prepaid wages
6. Cash 8. Mohan, a debtor

Solution:

1. Credit – Asset 2. Debit – Liability

3. Debit – Capital 4. Credit – Asset
5. Credit – Asset 6. Credit – Asset
7. Credit – Asset 8. Credit – Asset

Example of Journal entries-

Transactions-

1. Manoj invested ₹ 500000 cash in the business.

2. Opened a current account in the icici bank with ₹250000.
3. Purchased office computers for ₹100000 paying ₹5000 by cash and remaining by
cheque.
4. Purchased goods from Kamlesh on credit of list price ₹50000 and he allowed
20% trade discount.
5. Sold goods for cash ₹20000 and on credit to Ram for ₹25000.
6. Manoj withdrew cash ₹12500 for personal use.
7. Paid rent ₹10000, salary ₹4000
8. Ram returned goods worth ₹5000.
9. Paid to Kamlesh ₹39000 in full settlement by cheque.
10. Withdrew from bank for office use ₹15000.
11. Received from Ram cash ₹5000 and ₹15000 by Cheque.
12. Charge Depreciation on computers @40%.

DATE PARTICULARS L.F. DR.₹ CR.₹ NATURE NATURE REASON

OF OF
ACCOUNT CHANGE
1. CASH A/C DR. 500000 ASSETS INCREASE IN ASSET-DEBIT
TO MANOJ CAPITAL A/C CAPITAL INCREASE IN CAPITAL- CREDIT
500000
(BEINGTHE AMOUNT
INVESTED IN BUSINESS)

2.
ICICI BANK A/C DR. 250000 ASSETS INCREASE IN ASSETS-DEBIT
TO CASH A/C ASSETS DECREASE IN ASSETS-CREDIT
250000
(BEING CASH DEPOSITED
IN BANK)
 100000 ASSETS INCREASE IN ASSETS-DEBIT
3. 5000 ASSETS DECREASE IN ASSETS-CREDIT
95000 ASSETS DECREASE IN ASSETS-CREDIT

4. EXPENSES INCREASE IN EXPENSE-DEBIT

LIABILITY INCREASE IN LIABILTY-CREDIT

20000 ASSETS INCREASE IN ASSETS-DEBIT

5. 25000 ASSETS INCREASE IN ASSETS-DEBIT
45000 INCOME INCREASE IN INCOME-CREDIT

12500 CAPITAL DECREASE IN CAPITAL- DEBIT

12500 ASSETS DECREASE IN ASSETS- CREDIT
6.

10000 EXPENSE INCREASE IN EXPENSE- DEBIT

4000 EXPENSE INCREASE IN EXPENSE- DEBIT
7. DECREASE
14000 ASSETS IN ASSETS- CREDIT

5000 INCOME DECREASE IN INCOME-CREDIT

5000 ASSETS DECREASE IN ASSETS- CREDIT
8.

40000 LIABILITY DECREASE IN LIABILITY- DEBIT

9. 39000 ASSETS DECREASE IN ASSETS- CREDIT
1000 INCOME INCREASE IN INCOME- CREDIT

10. 15000 ASSETS INCREASE IN ASSETS- DEBIT

15000 ASSETS DECREASE IN ASSETS-CREDIT

5000 ASSETS INCREASE IN ASSETS- DEBIT

15000 ASSETS INCREASE IN ASSETS- DEBIT

ASSETS DECREASE IN ASSETS- CREDIT

11. 20000

400000 EXPENSE INCREASE IN EXPENSES-DEBIT

40000 ASSETS DECREASE IN ASSETS- CREDIT
12.
 Opening Entry – When the closing balance of our assets, liabilities and capital are brought
forwarded from previous year to current year then, we have to record such balances of the
said accounts are to be done with the help of passing an opening journal entry.

DATE PARTICULARS L.F. DR. (₹) CR. (₹)

XXX Assets A/c Dr. XXXX
To Liabilities A/c XXXX
To Capital A/c XXXX
(Being ______________________ )

 Compound Journal Entry – Transactions which are inter-connected and have taken place
simultaneously are recorded by means of a compound or combined journal entry. For
example, if amount is spent on the same day for salaries, wages, stationery, rent, etc. a
combined entry can be passed debiting all the relevant nominal accounts with respective
amounts and crediting cash account with the total amount spent.

DATE PARTICULARS L.F. DR. (₹) CR. (₹)

XXX Salary A/c Dr. XXXX
Wages A/c Dr. XXXX
Stationary A/c Dr. XXXX
Rent A/c Dr.
To Cash A/c
(Being ______________________ )

Accounting entries for GST, TDS, ESI and PF-

GST-

The business enterprise has to maintain the following accounts (apart from accounts like
purchase, sales, stock) –

 Input CGST a/c- when CGST paid on purchase of goods and services (intrastate)
 Output CGST a/c- when CGST collected from buyer at the time of sales of goods and
services (intrastate)
 Input SGST a/c- when SGST paid on purchase of goods and services (intrastate)
 Output SGST a/c- when SGST collected from buyer at the time of sales of goods and
services (intrastate)
 Input IGST a/c- when IGST paid on purchase of goods and services. (interstate)
 Output IGST a/c- when IGST collected from buyer at the time of sales of goods and
services (interstate).
 Electronic Cash Ledger (Automatically maintained on Government GST portal to pay
GST, interest, fees or penalty.)

Example 1: Intra-state (all amounts excluding GST)-

1. Purchased goods ₹ 2,00,000 locally (intrastate)

 2. He sold them for ₹ 2,50,000 in the same state
3. He paid legal consultation fees ₹ 10,000
4. He purchased furniture for his office for ₹ 20,000 from Star furniture.

Assuming CGST @9% and SGST@9%

The entries will be-

1 Purchase A/c........................Dr. 2,00,000

Input CGST A/c.................... Dr. 18,000
Input SGST A/c .................... Dr. 18,000
To Creditors A/c 2,36,000
2 Debtors A/c ....................... Dr. 2,95,000
To Sales A/c 2,50,000
To Output CGST A/c 22,500
To Output SGST A/c 22,500
3 Legal fees A/c ..................... Dr. 10,000
Input CGST A/c.................... Dr. 900
Input SGST A/c ....................Dr. 900
To Bank A/c 11,800
4 Furniture A/c ..................... Dr. 20,000
Input CGST A/c.................... Dr. 1800
Input SGST A/c ....................Dr. 1800
To Star Furnitures A/c 23,600

Total Input CGST=18,000+900+1800= ₹ 20700

Total Input SGST=18,000+900+1800= ₹ 20700
Total output CGST=22,500
Total output SGST=22,500
Therefore Net CGST payable=22,500-20,700=1800
Net SGST payable=22,500-20700=1800
5 Output CGST A/c.................... Dr. 22,500
Output SGST A/c.................. Dr. 22,500
To Input CGST A/c 20,700
To Input SGST A/c 20,700
To Electronic Cash Ledger A/c 3600

Thus due to input tax credit, tax liability is reduced. Also, GST on legal fees can be used for set
off against the GST payable on goods sold as GST paid on input services is also admissible for
taking benefit of input tax credit. If there had been any input tax credit left it would have been
carried forward to the next year.

Example 2: Inter-state (all amounts excluding GST)-

1. Purchased goods ₹ 2,50,000 from outside the State

2. Sold ₹ 1,80,000 locally
3. Sold ₹1,10,000 outside the state
 4. Paid telephone bill ₹ 7,000
5. Purchased an air conditioner for office for ₹ 20,000 (locally) from Star electronics.

Assuming CGST @9% and SGST@9%

1 Purchase A/c........................Dr. 2,50,000

Input IGST A/c ................... Dr. 45,000
To Creditors A/c 2,95,000
2 Debtors A/c ....................... Dr. 2,12,400
To Sales A/c 1,80,000
To Output CGST A/c 16,200
To Output SGST A/c 16,200
3 Debtors A/c ....................... Dr. 1,29,800
To Sales A/c 1,10,000
To Output IGST A/c 19,800
4 Telephone Expenses A/c..…Dr. 7,000
Input CGST A/c.......................... Dr. 630
Input SGST A/c ....................... Dr. 630
To Bank A/c 8,260
5 Office Equipment A/c. ..... Dr. 20,000
Input CGST A/c.................... Dr. 1800
Input SGST A/c ....................Dr. 1800
To Star Electronics A/c 23,600
Total CGST input =630+1800=2430
Total CGST output =16200
Total SGST input =630+1800=2430
Total SGST output =16200
Total IGST input =45000
Total IGST output =19800

Particulars CGST SGST IGST

Output liability 16200 16200 19800
Less: Input tax credit
IGST 13770 11430(b/f) 19800
CGST 2430
SGST 2430
Amount payable NIL 2340 NIL

Any IGST credit will first be applied to set off IGST and then to set off CGST and SGST in any
order.
So out of total input IGST of ₹ 45000, firstly it will be completely set off against output IGST of
₹19800. Then ₹13770 against CGST and balance ₹11430 against SGST.
From the total ₹52200, only ₹2340 is payable.
So the setoff entries will be-

Set off against CGST output

1 Output CGST ....................... Dr. 16200
To Input CGST A/c 2430
 To Input IGST A/c 13770
2 Set off against SGST output
Output SGST ....................... Dr. 13860
To Input SGST A/c 2430
To Input IGST 11430
3 Set off against IGST output
Output IGST ....................... Dr. 19800
To Input IGST A/c 19800
4 Final payment
Output SGST A/c ................... Dr. 2340
To Electronic Cash Ledger A/c 2340

Ledgers under GST-

Generally, the ledgers maintained with respect to GST entries are Output CGST/ SGST/ IGST
and Input CGST/ SGST/ IGST. Other than the above records, there are mainly 3 electronic
ledgers that are maintained by the GST portal which we can keep a track of in our accounts:

Electronic Liability Ledger: This ledger shows the tax liability payable by the assessee and
can only be cleared when it is set off against either the electronic credit ledger or electronic cash
ledger or both.
Electronic Credit Ledger: This ledger depicts the credit tax available if any.
Electronic Cash Ledger: This ledger maintains details of tax payments made by the assessee
which can be used to set off tax liabilities as displayed by the Electronic Liability Register.
Thus, if we want to truly make sure that our accounts are in line with the GST portal we will
need to account for the above ledgers and also pass monthly closing entries.

How to pass accounting entries for filing

Let us first see how the entries are passed keeping in mind the requirements of the 3 main GST
forms:

GSTR 1

The output tax liability is determined through this form initially and hence our entries will reflect
the same.
1. B2B / B2C supplies:
During the month let’s say:
The taxable value of our sales/ output = ₹ 3,00,000
On which CGST = ₹ 27,000 and SGST = ₹ 27,000.
The entries while making the actual supply would be as follows:
Debtors A/c........................ Dr. 3,54,000
3,00,000
To Sales (B2B / B2C) A/c 27,000
27,000
To Output CGST A/c
To Output SGST A/c
Word of advice: Maintain separate sales accounts for B2B, B2C, Export, Exempt, inter-state
sales and even supplies liable to reverse charge.
2. Exempt supplies:
Debtors A/c........................ Dr. xx
xx
To Sales (Exempt) A/c
Making an exempt supply will not lead to any output tax liability but will still have to be disclosed
in the Form GSTR – 1 and thus proper records will need to be maintained in this regard.
3. Zero-rated supply:
A zero-rated supply is a supply which includes exports and supplies made to an SEZ developer
or an SEZ unit. Such supplies can be made under either of the following options:

1. Without payment of tax (IGST): The goods or services may be exported without paying
any IGST thereon under a bond or Letter of Undertaking after following the prescribed
conditions.

2. With payment of tax (IGST): The goods or services may be supplied after charging the
applicable IGST and subsequently, the refund for such IGST can be claimed.

The accounting entries under the above 2 situations will be as follows:

Consider that an export has been made to Mr. Z located in a foreign country worth ₹ 1,00,000
and the applicable GST rate is 18%
Export made under bond:
Mr. Z A/c ........................ Dr. 1,00,000 1,00,000

To Sales A/c
(Being export made to Mr. Z under bond without payment of tax)
Export made with payment of IGST:
25.04.2018 Mr. Z A/c ......................... Dr. 1,00,000
IGST Refund Receivable A/c .............Dr. 18,000
To Sales A/c 1,00,000
To Output IGST A/c 18,000
4. Advances received:
GST liability is attracted even on receipt of advance. Where an advance is received in a
particular month and the invoice in respect of the same is raised in the same month, the
accounting will be done as follows:

Bank A/c ....................... Dr. xx

To Advance for goods/ services A/c xx
(Being advance received on outward supply)
Advance for goods/ services A/c ............. Dr. xx
To Sales (B2B / B2C) A/c xx
To Output CGST A/c xx
To Output SGST A/c xx

However, where the advance is raised in a particular month and the invoice is raised in a
subsequent month, the GST will practically have to be paid on receipt of the advance itself and
the accounting for the same will be done as follows:

Bank A/c ....................... Dr. xx

To Advance for goods/services A/c Xx
(Being advance received on outward supply)
GST on advance received A/c ............. Dr. xx
To Output CGST A/c xx
To Output SGST A/c xx
(Being GST liability recorded on the advance)
Advance for goods/services A/c ............. Dr. xx
To Sales (B2B / B2C) A/c xx
To Output CGST A/c xx
To Output SGST A/c xx
(Being invoiced raised subsequent to receipt of advance)
Output CGST A/c ............. Dr. xx
Output SGST A/c ............. Dr. xx
To GST on advance received A/c Xx
(Being output liability reduced since GST has been paid at time of receipt of
advance)

5. Credit / Debit Notes:

Credit notes in general have the effect of reducing the output tax liability and debit notes have
the effect of increasing the output tax liability. The accounting for a credit note can be shown
with the following example:
A sale of 100 units of goods costing ₹ 20 each was made by Mr. B to Mr. A and delivered to him
on 25.04.2018. However, upon receipt of the consignment, Mr. A observed that only 90 units
were delivered. Upon verification of the same, Mr. B will issue a credit note to Mr. A dated, say,
01.05.2018, in respect of the deficiency of 10 units. The entries for the above situation would be
passed as follows:
25.04.2018 Mr. A’s A/c ......................... Dr. 2,360
To Sales A/c 2,000
To Output CGST 180
To Output SGST 180
(Being 100 units sold @ ₹ 20 each to Mr. A)
01.05.2018 Sales A/c .............Dr. 200
Output CGST A/c ............. Dr. 18
Output SGST A/c ............ Dr. 18
To Mr. A’s A/c 236
(Being credit note issued to Mr. A for deficiency in 10 units)

In the above example, if Mr. A received 110 units instead of the 100 units ordered for and he is
given the option to pay for such goods and keep them, Mr. B will raise a debit note for the
balance goods. The accounting for in respect of the balance 10 units will be done as follows:
25.04.2018 Mr. A’s A/c ......................... Dr. 236
To Sales A/c 200
To Output CGST 18
To Output SGST 18
(Being debit note issued in respect of 10 units @ ₹ 20 each to
Mr. A)

6. Amendment in invoices:

Form GSTR – 1 also allows for amending earlier raised invoices in case errors in the following
inputs:

 Invoice number
 Invoice date
 Place of Supply (but not supply type)
 Invoice value
 Taxable value
 Amount of tax

Let us look at how an amendment in an invoice will affect our accounting entries:
Illustration :
Mr. A made an output supply having taxable value of ₹ 30,000 on IGST of ₹ 5,400 was paid in
the month of July 2018. While preparing the invoice for this supply, the taxable value was
erroneously entered as ₹ 3,00,000 on which IGST of ₹ 54,000 was paid and the GSTR – 1 filed
accordingly. The error was noticed in the subsequent month. The entries to be passed in such a
case would be:
Edit
July Debtor A/c ......................... Dr. 3,54,000 3,00,000
To Sales (B2B / B2C) A/c 54,000
To Output IGST A/c
(Being the incorrect entry passed in July)
August Sales (B2B / B2C) A/c ............ Dr. 2,70,000
Output IGST A/c............ Dr. 48,600
To Debtor A/c 3,18,600
(Being incorrect sales amount now corrected)

Since extra tax was paid, this amendment in the invoice has the effect of reducing the output tax
payable in the month of August.

Illustration :
Mr. A made an output supply having taxable value of ₹ 3,00,000 on which IGST of ₹ 54,000 was
paid in the month of July 2018. While preparing the invoice for this supply, the taxable value
was erroneously entered as ₹ 30,000 on which IGST of ₹ 5,400 was paid and the GSTR – 1
filed accordingly. The error was noticed in the subsequent month. The entries to be passed in
such a case would be:
July Debtor A/c ......................... Dr. 35,400
To Sales (B2B / B2C) A/c 30,000
To Output IGST A/c 5,400
(Being the incorrect entry passed in July)
August Debtor A/c ......................... Dr. 3,18,600
To Sales (B2B / B2C) A/c 2,70,000
To Output IGST A/c 48,600
(Being incorrect sales amount now corrected)

Since short tax was paid in an earlier month, the output tax liability for the month of August
would be increased by the difference in tax liability and interest would be charged accordingly at
the time of payment.
vi) Closing entries:
At the time of filing GSTR -1, the output tax liability is determined and the entries will need to be
passed in the following manner:

Output CGST A/c ............. Dr. xx

Output SGST A/c ............. Dr. xx
Output IGST A/c .............Dr. xx
To Electronic Liability Ledger CGST A/c xx
To Electronic Liability Ledger SGST A/c xx
To Electronic Liability Ledger IGST A/c xx
(Being output tax liability determined)

GSTR 2

Entries relating to the availing of Input Tax Credit will be passed by transferring the amount of
credit from the input GST accounts to the respective Electronic Credit Ledger. However, in this
scenario, a possibility of ineligible Input Tax Credit emerges and should be accounted for in
accordance with the provisions of the CGST Act. Where the entity makes both taxable and
exempt supplies, the inputs used commonly to provide such output supplies would be availed
and reversed in the proportion of exempt supply turnover to total turnover. If the appropriate
bifurcation of ITC that needs to be reversed (T1, T2, and T3) and eligible ITC has been made
according to the rules at the invoice level, the closing entries can be passed as follows:

Electronic Credit Ledger CGST A/c ............ Dr. xx

Electronic Credit Ledger SGST A/c ............. Dr. xx
Electronic Credit Ledger IGST A/c............. Dr. xx
Expense (T1 / T2 / T3 / Te) A/c............. Dr. xx
To Input CGST A/c xx
To Input SGST A/c xx
To Input IGST A/c xx
(Being eligible ITC availed and ineligible ITC distributed as per GSTR 2)
The treatment would be similar even in the case of capital goods being used to make an exempt
outward supply.
Another aspect with regards to accounting at the time of filing Form GSTR – 2 is the matching of
credits as available in Form GSTR – 2A. Where we have claimed credit in respect of certain
inputs but the same is not shown on the portal, we are allowed to modify it which will then have
to be accepted/rectified by the supplier. In the meantime, we are allowed to claim credit on a
provisional basis which will be accounted for as follows:

Provisional Input CGST A/c............ Dr. xx

Provisional Input SGST A/c ............. Dr. xx
Provisional Input IGST A/c ............ Dr. xx
To Electronic Credit Ledger CGST A/c xx
To Electronic Credit Ledger SGST A/c xx
To Electronic Credit Ledger IGST A/c xx
(Being ITC claimed on provisional basis due to mismatch with Form GSTR –
2A)
Assuming that we had claimed provisional credit with respect to IGST of ₹ 18,000 paid on
consultancy services and this claim was rejected by the consultancy service provider, the entry
to be passed is:

Consultancy Charges A/c ........................ Dr. 18,000

To Provisional Input IGST A/c 18,000
(Being claim of provisional ITC rejected by supplier / service provider)
Further, if such claim was accepted by the consultancy service provider, the entry would be:

Electronic Credit Ledger IGST A/c ............. Dr. 18,000

To Provisional Input IGST A/c 18,000
(Being claim of provisional ITC accepted by supplier / service provider)

GSTR 3
Form GSTR – 3 or GSTR – 3B is the final monthly return to be filed and it is in this form that the
final tax payment is determined. Thus the final closing entry for the month with respect to GST
would be as follows:
 Electronic Liability Ledger CGST A/c ............. Dr. xx
Electronic Liability Ledger SGST A/c ............. Dr. xx
Electronic Liability Ledger IGST A/c ............. Dr. xx
To Electronic Credit Ledger CGST A/c xx
To Electronic Credit Ledger SGST A/c xx
To Electronic Credit Ledger IGST A/c xx
To Electronic Cash Ledger CGST A/c xx
To Electronic Cash Ledger SGST A/c xx
To Electronic Cash Ledger IGST A/c xx
(Being output tax liability set-off using available ITC and balance paid in
cash)

Accounting entries for TDS and ESI

1. Accounting Entries for Professional payment under section 194J and TDS deducted
thereon @ 10%-

Particulars Accounting Entry

(i) Professional fees paid to XY & Associates, firm of Chartered Accountant of ₹ 25,000
during the year, if TDS not Applicable-
- At the time of Provision of Professional Charges A/c Dr. 25,000
expenses- To M/s XY & Associates A/c 25,000
(Being amount of provision made)
- At the time of payment of M/s XY & Associates A/c Dr. 25,000
Fees- To Bank A/c 25,000
(Being amount of fees paid to M/s XY & Associates, firm
of Chartered Accountant)

(ii) Professional fees paid to XY & Associates, firm of Chartered Accountant of ₹ 35,000
during the year, when TDS is Applicable-
- At the time of Provision of Professional Charges A/c Dr. 35,000
expenses- To M/s XY & Associates A/c 31,500
To TDS payable on Professional fees A/c 3,500
(Being provision of fees made to M/s XY & Associates
after deducting TDS @ 10%)

- At the time of payment of M/s XY & Associates A/c Dr. 31,500

Fees- To Bank A/c 31,500
(Being amount of fees paid to M/s XY & Associates, firm
 of Chartered Accountant)
- At the time of payment of TDS payable on professional fees A/c Dr. 3,500
TDS- To Bank A/c 3,500
(Being amt of TDS u/s 194J deposited)

(iii) If GST charged on Professional fees, paid to XY & Associates, firm of Chartered
Accountant of ₹ 1,00,000 + GST of ₹ 18,000 i.e. totaling to ₹ 1,18,000 during the year –

- At the time of Provision of Professional Charges A/c Dr. 1,00,000

expenses- IGST or CGST or SGST Receivable A/c Dr. 18,000
To M/s XY & Associates A/c 1,08,000
To TDS payable on Professional fees A/c 10,000
(Being provision of fees made to M/s XY & Associates
after deducting TDS @ 10%)
- At the time of payment of M/s XY & Associates A/c Dr. 1,08,000
Fees- To Bank A/c 1,08,000
(Being amount of fees paid to M/s XY & Associates, firm
of Chartered Accountant)
- At the time of payment of TDS payable on professional fees A/c Dr. 10,000
TDS- To Bank A/c 10,000
(Being amt of TDS u/s 194J deposited)

2. Accounting Entries for Payment to contractor under section 194C and TDS deducted
for Individual/HUF @1% & Other than Individual/HUF @2%
Particulars Accounting Entry
(i) Job Work charges paid to XY & company, partnership firm of ₹ 25,000 during the year,
if TDS not Applicable-
- At the time of Provision of Job work charges A/c Dr. 25,000
expenses- To M/s XY & Company A/c 25,000
(Being provision of fees made to M/s XY & Company)
- At the time of payment of M/s XY & Company A/c Dr. 25,000
contact amount- To Bank A/c 25,000
(Being amount of fees paid to M/s XY & Company)

(ii) Job Work charges paid to XY & Company, Partnership firm of ₹ 1,25,000 during the
year, when TDS is Applicable-
- At the time of Provision of Job work Charges A/c Dr. 1,25,000
expenses- To M/s XY & Company A/c 1,22,500
To TDS payable on Contractor A/c 2,500
(Being provision of fees made to M/s XY & Company
after deducting TDS @ 2%)
- At the time of payment of M/s XY & Company A/c Dr. 1,22,500
contact amount- To Bank A/c 1,22,500
(Being amount of payment made to M/s XY & Company)
- At the time of payment of TDS payable on Contractor A/c Dr. 2,500
TDS- To Bank A/c 2,500
(Being amt of TDS u/s 194C deposited)

(iii) If Job Work charges paid to XY & Company, Partnership firm of ₹ 1,00,000 + GST of ₹
18,000 i.e. totaling to ₹ 1,18,000 during the year –

- At the time of Provision of Job Work Charges A/c Dr. 1,00,000

expenses- IGST or CGST or SGST Receivable A/c Dr. 18,000
To M/s XY & Company A/c 1,16,000
To TDS payable on Contractor A/c 2,000
(Being provision of payment made to M/s XY & Company
after deducting TDS @ 2%)
- At the time of payment of M/s XY & Company A/c Dr. 1,16,000
contact amount- To Bank A/c 1,16,000
(Being amount paid to M/s XY & Company)
- At the time of payment of TDS payable on Contractor A/c Dr. 2,000
TDS- To Bank A/c 2,000
(Being amt of TDS u/s 194C deposited)

3. Accounting Entries for Payment of Salary under section 192 and TDS deducted
thereon-
Particulars Accounting Entry
(i) For Payment of Total Salary of ₹ 2,50,000/- after deducting TDS of ₹ 20,000/-, ESI of ₹
12,000/- and PF of ₹ 28,000/-
- At the end of month the provision- Salary A/c Dr. 3,10,000
To Salary Payable A/c 2,50,000
To ESI Payable A/c 12,000
To PF Payable A/c 28,000
To TDS payable on Salary A/c 20,000
(Being provision of salary made at the end of
month)
- Employer’ Contribution to ESI Employer’s Contribution to ESI A/c Dr. 30,000
(30,000)- To ESI Payable A/c 30,000
(Being amount of Employer’s contribution to
ESI)
- Employer’ Contribution to PF (28,000 Employer’s Contribution to PF A/c Dr. 28,000
+ Admin Expenses 2,000)- PF Administration charges A/c Dr. 2,000
To PF Payable A/c 30,000
(Being amount of Employer’s contribution to PF)

- At the time of payment of salary- Salary Payable A/c Dr. 2,50,000

To Bank A/c 2,50,000
(Being amount of salary paid)
- At the time of payment of ESI- ESI Payable A/c Dr. 42,000
To Bank A/c 42,000
(Being amount of ESI paid i.e. (Employee's
Contribution + Employer's Contribution)
- At the time of payment of PF- PF Payable A/c Dr. 58,000
To Bank A/c 58,000
(Being amount of PF paid i.e. (Employee's
Contribution + Employer's Contribution)
- At the time of payment of TDS- TDS payable on Salary A/c Dr. 20,000
To Bank A/c 20,000
(Being amt of TDS u/s 192 deposited)