GST repercussions on outstanding Invoices

Lyn_10072495

My understanding is that if using an Accrual method, the GST is brought into the quarterly equation even if the Invoice has not yet been paid. EG, Inv is dated 02/11/2019 but has not yet been paid for by the customer at 31/12/19. In our business, we need to deal with the  replacement of warranty items. We send the customer a new item, Invoice it at full price with the notes that once the failed item has been returned to us, the Invoice will be cancelled. In the past, we've simply deleted the Invoice. But if I've brought that GST component into the quarterly BAS and then pay it (on the BAS to the ATO),   by deleting the Invoice, I think I do my self an injustice. My question is, instead of deleting the Invoice, if I create an Adjustment notice, will that counteract the GST in our favour? 

John Graetz

HI Lyn.  You are correct.  Under accrual accounting, GST is taken into account for all transactions at the date of creation.  If you have paid the GST on any for one quarter and then simply cancelled the invoice in a subsequent quarter, you will effectively have paid GST on a transaction which does no longer exist.  Your approach to issue an Adjustment Note, dated when the goods are returned and include GST in the transaction, it will counteract the initial transaction.
It is probably in your best interests to adopt the same approach for all similar transactions, so as to avoid confusion i.e. issue the invoice and then negate it by issuing an Adjustment Note, rather than say just deleting the invoice if the return happens to be in the same quarter.
John L G

Lyn_10072495

Thank you so much for explaining and confirming things clearly. I think its a great idea as you've suggested to deal with this approach across the board. Ill be implementing this immediately.

Zappy

Why are you raising an invoice only to cancel it? Why don't you just make it pending if that's what you are doing? In fact, why are you raising an invoice at all for non billable work? I'm intrigued.