Let's start by assuming you know the basics of how to do a GST return. If not, you should be talking to an advisor who will teach you. But once you've done the calculations for a GST return, we then need to check it is correct. Most people don't do this - they leave it until their accountant comes to them (usually some way through the next year) and says there is a problem. By doing this simple check each time you prepare a return, you avoid this, saving you and your accountant much strife.

 

Run a balance sheet for the date the GST return runs to. If your GST is on an accrual / invoice basis, you simply compare the GST balance (there could be multiple GST accounts to be totalled) to the return you've calculated. In an ideal world, they match and you can give yourself a pat on the back and relax. In practice, most people do GST returns on a payments / cash basis. In that case, your next course of action is determined by what system you use. If you can switch your balance sheet report to a cash basis, simply, then do that and check the same figures. If not adjust for the GST on debtors and creditors.

 

This is not quite as simple as taking the figures and multiplying by 3 / 23. Your debtors may include zero rated sales (exports). Your creditors may include imports and exempt items. But most systems have a report that will show the amount of GST on these items. However you do it, you need to get the GST on debtors and creditors. Once you have the figures, you start with the total GST from the balance sheet. If it is a refund, then the sign is negative (even though it's actually a debit). You deduct from that the GST on the debtors, and you add to that the GST on the creditors. The resulting total is your GST on a cash basis, which you can then check to your GST return. Again if it's the same, pat yourself on the back and relax.

 

If you've never done this before the two figures won't be the same. There are so many reasons this may not be the same we can't go through them all. But it helps to understand why this should balance and then work from there.

 

The GST report is for a period - usually two monthly. It involves all the transactions over that time. The balance sheet is at a given date. The GST balance includes all GST transactions from the first day up until that date.  So if a transaction was dated wrongly, it can throw things out. For example, if a June payment was dated in April, or a 2013 transaction was dated 2012, it will affect the balance sheet, but will not appear in the GST return in most systems.  Similarly, if the March return is not paid until 7 May, it will throw out the GST balance for those on monthly GST.

 

Some GST payments may not have been coded correctly. If you pay provisional tax with your GST returns, the whole payment may have been included as GST or provisional tax, instead of being split. Or if you have been charged interest or penalties and these have not been separated out that will also cause problems.

 

Beyond that the possibilities are virtually endless. One common problem is that some entries are only done as part of the end of year accounts. Where these include GST, they have to be adjusted in the GST returns. Some systems will do that for you - others require manual intervention.

 

Another common problem is where transactions are not matched off or "applied". It may be that you've been paid privately for an invoice, or you've paid a bill privately. In these cases you may have entered a journal to clear the bill or invoice - but the debtor or creditor may still show up, albeit with a nil balance. In this case you need to apply the payment to the invoice or bill to get it included in the GST return on a cash basis.

 

There are endless possibilities for variances. You can repeat the procedure for any GST return you've done to see the variance for a period. Note you should always rerun the GST report for the period rather than go off the old printed copy as things may have been entered after the report was printed.

 

Once things balance, you should find they balance from then on. If they don't, then something has been added or subtracted in the current period (unless you've gone back and changed a prior period entry). But for most people, once reconciled, future periods should match.

 

A final thought - some people find after all is said and done a small variance of say $10 or so that isn't worth investigating. In that case you can adjust your GST return so it matches and then future occasions will also balance. In these cases you can show this as an adjustment, or simply adjust the payments figure.

 

We have a simple spreadsheet model which reflects this.