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GST calculations, in depth

The single most repeated calculation in the whole paper, and the one that poisons every downstream figure if it is wrong.

Splitting an inclusive figure

  • NZ GST is 15%, so a GST-INCLUSIVE figure represents 115% of the exclusive amount — or 23/20 of it, since 115/100 simplifies to 23/20.
  • GST portion = inclusive amount × 3/23.
  • Exclusive (expense/income/asset) portion = inclusive amount × 20/23 — equivalently, inclusive amount minus the GST portion just found.
  • Always do the GST split BEFORE writing any other figure in the entry — every subsequent number in that journal entry depends on getting this split right first.
Worked example Splitting a GST-inclusive invoice An invoice for advertising is received for $621, including GST. Record the journal entry. GST = 621 × 3/23 = $81. Advertising expense (exclusive) = 621 × 20/23 = $540 (or equivalently 621 − 81 = 540). Journal entry: Debit Advertising 540, Debit GST 81, Credit Accounts Payable 621. ✓ The debit side splits into two lines (expense + GST) that together equal the single credit line (the full inclusive amount owed) — this two-lines-equal-one-line pattern is worth checking on every GST journal entry.

Which direction the GST account moves

  • GST on a PURCHASE or EXPENSE (money going out, or an asset/expense coming in) is GST you can CLAIM BACK — it is debited to the GST account.
  • GST on a SALE or INCOME (money coming in) is GST you OWE to Inland Revenue — it is credited to the GST account.
  • A bad debt written off REVERSES a sale that already happened, so the GST originally charged on that sale becomes reclaimable — hence GST is debited (not credited) when writing off a bad debt.
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Forgetting the GST line entirely on an "including GST" transaction

When a transaction is stated "including GST", TWO lines are needed on whichever side has the exclusive figure and the GST portion separately — never just the exclusive figure alone, and never the inclusive figure treated as if it were entirely expense or entirely income. Missing the GST line is one of the most common ways a journal entry loses marks even when the exclusive amount is calculated correctly. ℹ

A transaction stated "excluding GST" needs no split at all

When a figure is already stated as EXCLUDING GST, it is used directly with no ×3/23 calculation needed — a separate GST line is added only if the transaction ALSO states a GST amount or an inclusive total elsewhere. Reading "excluding GST" as if it needed the same split as "including GST" produces a figure that is too small by exactly the GST portion.

Practise just this