[quote=“clive”]As a complete beginner myself, I found it easier to always remember that Assets are Debits and Liabilities are Credits.
So when you buy Stock it is an asset and so that Inventory Account is debited. When you owe money it is a liability and so it is a Credit. Think about your Credit Card - it is a liability!![/quote]
Thanks Clive - definitely a nice way of putting it
[quote=“Brucanna”]No, customers need to pay tax on top of your selling price.
Your selling price is the cost price (excluding GST) plus your margin (mark up) then add the tax.
You use the cost price excluding GST as the GST paid by you will be refunded - offset against the GST collected from customers.[/quote]
I’m still a little confused.
So sorry, one last long post and I think that’ll get me through and out of everyone’s hair for while.
So let’s put out an example.
I purchase an item for stock, at $50 ex GST. So I should mark up first then right? Let’s put a $25 mark up.
So now it’s $75. Then add tax, so 10% of $75 is $7.5, so total price for the item is $82.50. Let’s say I mark up a little more to make it $84 dollars (I just like working with 4’s and 9’s). So essentially, my mark up is $26.36 ($76.36), and tax paid is $7.64 then, right? Or did I get it wrong?
Reason I ask is because when I purchase stock from my suppliers, they already charge GST on top of the cost (ex GST) price.
So when I pay for the item, I’m already paying $55 inc GST. I then add my mark up of $25, so the price I sell is $80. Am I supposed to still add GST unto this price then before selling to the customer, so final selling price is $89 (I like my 4’s and 9’s)? Or would charging $79 be correct?
Based on the above scenarios, the customer buys the item. How do I work out the tax they paid? Somehow… my maths has completely just left my mind… Is it just 10% or $xx?
So if sold at $79, is the GST they paid just $7.9?
If sold at $84, is GST $8.4?
If sold at $89, is GST $8.9?
Or is it divide by 1.1? My sales invoice in Manager seems to do this (and it includes the GST of both the product and shipping I charged).
If just divided, then is GST $7.18, $7.64, or $8.09, respectively? Using this model, selling at $84, meaning purchasing the item at ex GST cost price and adding it after, seems to correlate with Manager calculations, and effectively, the GST I paid, the the GST the customer pays, cancels out and I nor the government owes anyone anything. Somehow, this doesn’t sound right to me, otherwise I wouldn’t see a reason for some of the people I’ve heard about look for ways to report breakeven to avoid paying any taxes, or then look for things they can claim on.
So, putting it in my situation that GST was already calculated and purchased, then technically, the GST I paid and will get refunded is only $5. The GST paid from the customer is $7.18, or $8.09 respectively. Offsetting it against what I paid, that means I’d owe the government $2.18 or $3.09, respectively.
So now working out my income, putting out a full scenario, let’s say shipping from supplier to me is $9 ex GST. My cost of shipping is also $9 ex GST, and I charge $15 inc GST (get some profit from it).
My cost from the supplier is product + shipping, $50 + $9, $59 ex GST. I am charged tax already, so I pay $64.9 inc GST.
I then sell the product at $79 inc GST, plus shipping of $15 inc GST. So customer pays me $94 inc GST.
So to work out my income, I have to take away the GST that the customer pays (because this is what I’ll owe to the government, right?), the cost of shipping, and cost of the product. The GST that the customer pays would be $8.55 (94 - (94/1.1)), right?
So 94 - 8.55 - 9.9 - 55 = $21.55 only then, right? Because I’m refunded $5 for the tax I paid when purchasing stock, my overall income is $26.55 right?
So I guess the situation is, I want to clarify where am I calculating my GST/tax and profit/income from, so I can revise my current prices and update and correct everything.
Inevitably (unless it’s just always the same), it looks like I’ll always owe the government the GST, since the refund they give me will never be more than what the customer paid, whether it’s straight up 10% or divided by 1.1, then right?
But if I have an expense, like transaction accounting) fees, marketing and promotions, etc, that’s when I can claim back on things and rather than owing the government $3.55 (using the above example of customer GST to me of $8.55 and my GST to supplier of $5), they’ll refund me according to whatever they cover, right?
Again, I apologise for the lengthy post. I think once I’ve covered this, everything else will make sense. When it talks about liabilities, assets, expenses, etc, it’ll make sense since I have a real, complete, example, a reference, I can use.
It’s almost tax time, so just trying to equip myself with the basic maths to at least do this part right for when I put in my taxes, whilst I learn about the other stuff.