9.06 Bad Debt Relief
GST Input and Output tax adjustment to the Bad Debt treatment for Supplier and Customer:-
SUPPLIER
Receive supplier invoice and post into the purchase invoice, the double entry will be :-
Dr Purchase 1000.00
Dr Input Tax 60.00
Cr Creditor 1060.00
After 6 months later and never made any payment to supplier, the company has to make the tax adjustment as the Output Tax to paid back to Kastam as before that you have claimed the Input Tax when you have received the supplier invoice.
Dr Creditor 60.00
Cr Output Tax 60.00
When the payment has made to supplier after the tax adjustment, the double entry will be:-
Dr Creditor 1000.00
Dr Input Tax 60.00
Cr Bank 1060.00
Input Tax recovered and claim back from Kastam at different period of time.
Conclusion:
If the company haven't made any payment to supplier within the stipulate time, ie 6 months, the company shall paid back the tax amount as "Output Tax" to Kastam.
Until the company has made the payment to supplier, the tax amount can claimed back as "Input Tax" from Kastam.
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CUSTOMER
Selling goods to customer and raise the Tax Invoice, the double entry will be:-
Dr Debtor 2120.00
Cr Sales 2000.00
Cr Output Tax 120.00
After 6 months later and never receive any payment from customer, the company has to make the tax adjustment as the Input Tax to claim back from Kastam as before that you have paid the Ouput Tax when the Tax Invoice issued.
Dr Bad Debt 2000.00
Dr Input Tax 120.00
Cr Debtor 2120.00
When received the payment from Customer after the tax adjustment, the double entry will be:-
Dr Bank 2120.00
Cr Bad Debt Recovered 2000.00
Cr Output Tax 120.00
Output Tax reverted and need to pay back to Kastam at different period of time.
Conclusion:
If the company haven't received any payment from customer within the stipulate time, ie 6 months, the company can treat the customer as "bad debt" and claim the tax amount as "Input Tax" from Kastam. Kastam very good to let you claim a little rewards (input tax) as the debts fail to collect.
If the customer has made the payment to the company, the tax amount has to be pay back to Kastam as "Ouput Tax".