Contrived example: Alice and Bob both work for Charlie, who runs a lawnmowing service. Charlie bills $100 plus 10% GST/VAT for the job. If Alice does the job, she gets $50 - if Bob does the job, he gets the $50. At the end of the month, the GST has to be remitted to the government agency. How does Charlie track the GST?
Charlie happens to be using ledger (https://www.ledger-cli.org/) but this question is about double-entry accounting, not the software.
Let's just say that Charlie is better at mowing lawns than accounting... but he's always willing to learn :-)
2019-01-01 invoice customer for Alice's work ; the customer is billed, and the total amount (GST included) is ; posted to Accounts Receivable. Note there is no GST liability ; until the customer pays the bill. Assets:Accounts Receivable 110.00 Income:Alice -110.00 2019-01-02 customer pays invoice ; the outstanding figure in Accounts Receivable is cleared to the ; bank account. We now have a GST liability - but how do we ; properly account for this? Assets:Bank Account 110.00 Assets:Accounts Receivable -110.00 Liabilities:GST:Collected -10.00 HELP PLEASE 10.00 2019-01-03 pay Alice ; Alice gets paid - not complicated, that's an expense. Expenses:Salary 50.00 Assets:Bank Account -50.00 2019-02-01 remit GST ; the GST liability is cleared Assets:Bank Account -10.00 Liabilities:GST:Collected 10.00
Here are our balance sheets after each transaction:
After first transaction (customer invoiced):
110 Assets:Accounts Receivable -110 Income:Alice
After second transaction (customer paid):
110 Assets:Bank Account 10 HELP PLEASE -110 Income:Alice -10 Liabilities:GST:Collected
After third transaction (Alice paid):
60 Assets:Bank Account 50 Expenses:Salary 10 HELP PLEASE -110 Income:Alice -10 Liabilities:GST:Collected
After fourth/final transaction (GST remitted):
50 Assets:Bank Account 50 Expenses:Salary 10 HELP PLEASE -110 Income:Alice
The first question pertains to the obviously named account "HELP PLEASE".
There is an additional (albeit intrinsically related) question: how do we track how much GST was paid? When we pay GST, does this count as an Expense?