AccountingGST Filling and Taxation

 

INDEX

• What is Accounting
• History of Accounting
• Different Types of Accounting
• What Types of Careers are in the Accounting field
• What is the Accounting Cycle
• GST Return filling Introduction
• What is GST Return
• How Many Returns are there Under GST
• Conclusion

What is Accounting

Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows. Accounting is the main part of Accounting, GST Filling and Taxation.

 

Understanding Accounting

Accounting is one of the key functions of almost any business. A bookkeeper or an accountant may handle it at a small firm. At larger companies, there might be sizable finance departments guided by a unified accounting manual with dozens of employees.

The reports generated by various streams of accounting, such as cost accounting and managerial accounting, are invaluable in helping management make informed business decisions. 

The financial statements that summarize a large company’s operations, financial position, and cash flows over a particular period are concise and consolidated reports based on thousands of individual financial transactions.

As a result, all professional accounting designations are the culmination of years of study and rigorous examinations combined with a minimum number of years of practical accounting experience.

History of Accounting

The history of accounting has been around almost as long as money itself. Accounting history dates back to ancient civilizations in Mesopotamia, Egypt, and Babylon. For example, during the Roman Empire, the government had detailed records of its finances. However, modern accounting as a profession has only been around since the early 19th century.1

Luca Pacioli is considered “The Father of Accounting and Bookkeeping” due to his contributions to the development of accounting as a profession. An Italian mathematician and friend of Leonardo da Vinci, Pacioli published a book on the double-entry system of book.

 Different Types of Accounting?

Accountants may be tasked with recording specific transactions or working with specific sets of information. For this reason, there are several broad groups that most accountants can be grouped into.

Financial Accounting

Financial accounting refers to the processes used to generate interim and annual financial statements. The results of all financial transactions that occur during an accounting period are summarized in the balance sheet, income statement, and cash flow statement. The financial statements of most companies are audited annually by an external CPA firm.

For some, such as publicly traded companies, audits are a legal requirement. However, lenders also typically require the results of an external audit annually as part of their debt covenants. Therefore, most companies will have annual audits for one reason or another.

Managerial Accounting 

Managerial accounting uses much of the same data as financial accounting, but it organizes and utilizes information in different ways. Namely, in managerial accounting, an accountant generates monthly or quarterly reports that a business’s management team can use to make decisions about how the business operates.

Managerial accounting also encompasses many other facets of accounting, including budgeting, forecasting, and various financial analysis tools. Essentially, any information that may be useful to management falls under this umbrella.

Cost Accounting

Just as managerial accounting helps businesses make management decisions, cost accounting helps businesses make decisions about costing. Essentially, cost accounting considers all of the costs related to producing a product.

Analysts, managers, business owners, and accountants use this information to determine what their products should cost. In cost accounting, money is cast as an economic factor in production, whereas in financial accounting, money is considered to be a measure of a company’s economic performance.

Tax Accounting

While financial accountants often use one set of rules to report the financial position of a company, tax accountants often use a different set of rules. These rules are set at the federal, state, or local level based on what return is being filed.

Tax accounts balance compliance with reporting rules while also attempting to minimize a company’s tax liability through thoughtful strategic decision-making.

A tax accountant often oversees the entire tax process of a company: the strategic creation of the organization chart, the operations, the compliance, the reporting, and the remittance of tax liability.

What Types of Careers Are in the Accounting Field?

While basic accounting functions can be handled by a bookkeeper, advanced accounting is typically handled by qualified accountants who possess designations such as Certified Public Accountant (CPA) or Certified Management Accountant (CMA) in the United States.67

In Canada, the three legacy designations—the Chartered Accountant (CA), Certified General Accountant (CGA), and Certified Management Accountant (CMA)—have been unified under the Chartered Professional Accountant (CPA) designation.8

A major component of the accounting profession is the “Big Four”. These four largest accounting firms (Ernst & Young, KPMG, PricewaterhouseCoopers, Deloitte) conduct audit, consulting, tax advisory, and other services. These firms, along with many other smaller firms, comprise the public accounting realm that generally advises financial and tax accounting.

Careers in accounting may vastly differ by industry, department, and niche. Some relevant job titles may include:

• Auditor (internal or external): Ensures compliance with reporting requirements and safeguarding of company assets.
• Forensic accountant: Monitors internal or external activity to investigate the transactions of an individual or business.
• Tax accountant: Strategically plans the optimal business composition to minimize tax liabilities as well as ensures compliance with tax reporting.
• Managerial accountant: Analyzes financial transactions to make thoughtful, strategic recommendations often related to the manufacturing of goods.
• Information and technology analyst/Accountant: Maintains the system and software in which accounting records are processed and stored.
• Controller: Oversees the accounting functions of financial reporting, accounts payable, accounts receivable, and procurement.

What Are Accounting Standards?

In most cases, accountants use generally accepted accounting principles (GAAP) when preparing financial statements in the U.S. GAAP is a set of standards and principles designed to improve the comparability and consistency of financial reporting across industries.

Its standards are based on double-entry accounting, a method in which every accounting transaction is entered as both a debit and credit in two separate general ledger accounts that will roll up into the balance sheet and income statement.

In most other countries, a set of standards governed by the International Accounting Standards Board named the International Financial Reporting Standards (IFRS) is used.

Tax accountants overseeing returns in the United States rely on guidance from the Internal Revenue Service. Federal tax returns must comply with tax guidance outlined by the Internal Revenue Code (IRC).12

Tax accounts may also lean in on state or county taxes as outlined by the jurisdiction in which the business conducts business. Foreign companies must comply with tax guidance in the countries in which they must file a return.

What Are Major Accounting Software Platforms?

Accountants often leverage software to aid in their work. Some accounting software is considered better for small businesses such as QuickBooks, Quicken, FreshBooks, Xero, or Sage 50.

Larger companies often have much more complex solutions to integrate with their specific reporting needs. This includes add-on modules or in-home software solutions. Large accounting solutions include Oracle, NetSuite, or Sage products.

What Is the Accounting Cycle?

Financial accountants typically operate in a cyclical environment with the same steps happening in order and repeating every reporting period. These steps are often referred to as the accounting cycle, the process of taking raw transaction information, entering it into an accounting system, and running relevant and accurate financial reports. The steps of the accounting cycle are:

1. Collect transaction information such as invoices, bank statements, receipts, payment requests, uncashed checks, credit card statements, or other mediums that may contain business transactions.
2. Post journal entries to the general ledger for the items in Step 1, reconciling to external documents whenever possible.
3. Prepare an unadjusted trial balance to ensure all debit and credit balances and material general ledger accounts look correct.
4. Post adjusting journal entries at the end of the period to reflect any changes to be made to the trial balance run in Step 3.
5. Prepare the adjusted trial balance to ensure these financial balances are materially correct and reasonable.
6. Prepare the financial statements to summarize all transactions for a given reporting period.

Cash Method vs. Accrual Method of Accounting

Financial accounts have two different sets of rules they can choose to follow. The first, the accrual basis method of accounting, has been discussed above. These rules are outlined by GAAP and IFRS, are required by public companies, and are mainly used by larger companies.

The second set of rules follows the cash basis method of accounting. Instead of recording a transaction when it occurs, the cash method stipulates a transaction should be recorded only when cash has been exchanged.

Because of the simplified manner of accounting, the cash method is often used by small businesses or entities that are not required to use the accrual method of accounting.

Imagine a company buys $1,000 of inventory on credit. Payment is due for the inventory in 30 days.

• Under the accrual method of accounting, a journal entry is recorded when the order is placed. The entry records a debit to inventory (asset) for $1,000 and a credit to accounts payable (liability) for $1,000. When 30 days have passed and the inventory is actually paid for, the company posts a second journal entry: a debit to accounts payable (liability) for $1,000 and a credit to cash (asset) for $1,000.
• Under the cash method of accounting, a journal entry is only recorded when cash has been exchanged for inventory. There is no entry when the order is placed; instead, the company enters only one journal entry at the time the inventory is paid for. The entry is a debit to inventory (asset) for $1,000 and a credit to cash (asset) for $1,000.

The difference between these two accounting methods is the treatment of accruals. Naturally, under the accrual method of accounting, accruals are required. Under the cash method, accruals are not required and not recorded.

Why Accounting Is Important

Accounting is a back-office function where employees may not directly interface with customers, product developers, or manufacturing. However, accounting plays a key role in the strategic planning, growth, and compliance requirements of a company.

• Accounting is necessary for company growth. Without insight into how a business is performing, it is impossible for a company to make smart financial decisions through forecasting. Without accounting, a company wouldn’t be able to tell which products are its best sellers, how much profit is made in each department, and what overhead costs are holding back profits.
• Accounting is necessary for funding. External investors want confidence that they know what they are investing in. Prior to private funding, investors will usually require financial statements (often audited) to gauge the overall health of a company. The same rules pertain to debt financing. Banks and other lending institutions will often require financial statements in compliance with accounting rules as part of the underwriting and review process for issuing a loan.
• Accounting is necessary for owner exit. Small companies that may be looking to be acquired often need to present financial statements as part of acquisition or merger efforts. Instead of simply closing a business, a business owner may attempt to “cash out” of their position and receive compensation for building a company. The basis for valuing a company is to use its accounting records.
• Accounting is necessary to make payments. A company naturally incurs debt, and part of the responsibility of managing that debt is to make payments on time to the appropriate parties. Without positively fostering these business relationships, a company may find itself with a key supplier or vendor. Through accounting, a company can always know who it has debts to and when those debts are coming due.
• Accounting is necessary to collect payments. A company may agree to extend credit to its customers. Instead of collecting cash at the time of an agreement, it may give a customer trade credit terms such as net 30. Without accounting, a company may have a hard time keeping track of who owes it money and when that money is to be received.
• Accounting may be required. Public companies are required to issue periodic financial statements in compliance with GAAP or IFRS. Without these financial statements, a company may be delisted from an exchange. Without proper tax accounting compliance, a company may receive fines or penalties.

Example of Accounting

To illustrate double-entry accounting, imagine a business sending an invoice to one of its clients. An accountant using the double-entry method records a debit to accounts receivables, which flows through to the balance sheet, and a credit to sales revenue, which flows through to the income statement.

When the client pays the invoice, the accountant credits accounts receivables and debits cash. Double-entry accounting is also called balancing the books, as all of the accounting entries are balanced against each other. If the entries aren’t balanced, the accountant knows there must be a mistake somewhere in the general ledger.

What Are the Responsibilities of an Accountant?

Accountants help businesses maintain accurate and timely records of their finances. Accountants are responsible for maintaining records of a company’s daily transactions and compiling those transactions into financial statements such as the balance sheet, income statement, and statement of cash flows. Accountants also provide other services, such as performing periodic audits or preparing ad-hoc management reports.

What Skills Are Required for Accounting?

Accountants hail from a wide variety of backgrounds. Generally speaking, however, attention to detail is a key component in accountancy, since accountants must be able to diagnose and correct subtle errors or discrepancies in a company’s accounts. The ability to think logically is also essential, to help with problem-solving. Mathematical skills are helpful but are less important than in previous generations due to the wide availability of computers and calculators.

Why Is Accounting Important for Investors?

The work performed by accountants is at the heart of modern financial markets. Without accounting, investors would be unable to rely on timely or accurate financial information, and companies’ executives would lack the transparency needed to manage risks or plan projects. Regulators also rely on accountants for critical functions such as providing auditors’ opinions on companies’ annual 10-K filings. In short, although accounting is sometimes overlooked, it is absolutely critical for the smooth functioning of modern finance.

GST Return Filing

Introduction-

In India, Every Organizations registered under GST must file their GST returns with a frequency that aligns with their business operations – monthly, quarterly, or yearly. This requirement might seem daunting, but with the online assistance of GST professionals from IndiaFilings, navigating through the necessary processes can be straightforward. Taxpayers must adhere to the designated deadlines for their GST submissions, as these returns are crucial for the Indian government to ascertain the nation’s tax obligations.

Streamline your GST Return filing process and maintain compliance effortlessly with IndiaFilings. Benefit from the convenience of LEDGERS GST platform, where you can access your business financials in real-time from any location. Plus, LEDGERS integrates smoothly with the apps you already use, ensuring a seamless workflow.

File GST returns with IndiaFilings now and keep your business ahead with ease!

What is GST Return?

A GST Return is a detailed statement that captures all the financial transactions of a person registered under GST, reflecting revenues and expenditures. It is a mandatory submission for every holder of GSTIN to the tax authorities, allowing them to determine the net tax liability with precision.

The GST return filing encompasses several critical elements:

• Purchases: It records in detail the purchases the taxpayer has made.
• Sales: It provides a comprehensive log of the taxpayer’s sales activities.
• Output GST (On Sales): It notes the GST charged on the taxpayer’s sales.
• Input Tax Credit (GST Paid on Purchases): It lists the GST paid on purchases, which is eligible to be deducted from the GST owed on sales.

For those seeking guidance on GST return filing or support with managing their GST compliance, IndiaFilings offers GST software designed to streamline the process.

Who Should File GST Returns?

GST returns must be filed by any business or individual registered under the GST regime. This obligation applies to entities whose annual aggregate turnover surpasses the specified threshold, which is set by the tax authorities and may differ for various classifications of taxpayers, such as standard taxpayers and those opting for the composition scheme.

How Many Returns are there under GST?

Within the Goods and Services Tax (GST) system, 13 returns cater to different facets of a taxpayer’s financial dealings. It’s important to recognize that not all taxpayers must file every type of return; the specific returns that need to be filed depend on the taxpayer’s category and the particulars of their GST registration.

Below is a snapshot of the 13 GST returns:

• GSTR-1: Filed for disclosing details of outward supplies, essentially the sales.
• GSTR-3B: A summarised return that outlines both sales and purchases, inclusive of tax payments.
• GSTR-4: Applicable to those under the Composition Scheme, summarizing turnover and corresponding tax.
• GSTR-5: For non-resident taxpayers conducting taxable transactions in India.
• GSTR-5A: For providers of online information and database access or retrieval services.
• GSTR-6: Used by Input Service Distributors for detailing input tax credit distribution.
• GSTR-7: For entities required to deduct TDS under GST.
• GSTR-8: To be filed by e-commerce operators reporting transactions on their platform.
• GSTR-9: An annual comprehensive return summarizing all periodical filings over the fiscal year.
• GSTR-10: The final return upon cancellation or surrender of GST registration.
• GSTR-11: For those with a Unique Identity Number, claiming refunds on their purchases.
• CMP-08: A quarterly statement for Composition Scheme taxpayers detailing tax liability.
• ITC-04: For manufacturers to declare details about goods dispatched to and received from a job worker.

Additionally, there are return-related statements for input tax credits:

• GSTR-2A (dynamic): Offers a real-time perspective of inward supplies as suppliers report.
• GSTR-2B (static): Provides a fixed snapshot of inward supplies based on the suppliers’ filings.

For small taxpayers enrolled in the Quarterly Return Monthly Payment (QRMP) scheme, the Invoice Furnishing Facility (IFF) permits the declaration of B2B sales during the first two months of a quarter. Nonetheless, these taxpayers are obligated to remit taxes monthly using Form PMT-06.

GSTR-1 (Return for Outward Supplies)

GSTR-1 is the mandatory return for businesses to detail their outward supplies of goods and services. This encompasses all sales-related invoices and adjustment notes for the given tax period. Every regular taxpayer under GST, including those classified as casual taxable persons, is obligated to file GSTR-1.

Submission Deadlines

• Monthly: Due on the 11th of the subsequent month for businesses whose yearly turnover exceeds Rs. 5 crore or for those not enrolled in the QRMP scheme.
• Quarterly: Due on the 13th of the month after the quarter’s end for businesses participating in the QRMP scheme.

GSTR-2A (Dynamic Read-Only Return)

GSTR-2A is a dynamic, read-only return for the recipients or purchasers of goods and services, capturing details of all incoming supplies from registered GST vendors within a tax period. The information in GSTR-2A is filled automatically from the GSTR-1 returns of suppliers and the Invoice Furnishing Facility (IFF) data for those in the QRMP scheme.

GSTR-2B (Static Read-Only Return)

Introduced in August 2020, GSTR-2B is a static read-only return that provides consistent ITC information sourced from the previous month’s GSTR-1 filings. It supports purchasers in matching their ITC claims for each tax period, advising on necessary actions for each listed invoice, including any need for reversals, ineligibility, or application of the reverse charge.

GSTR-2 (Deferred Return)

GSTR-2, an editable return, is presently deferred and was meant for registered purchasers to declare their inward supply of goods and services for a tax period. Initially planned to be auto-filled from GSTR-2A, its filing has been on hold since September 2017.

GSTR-3 (Deferred Return)

GSTR-3, a suspended monthly summary return for regular taxpayers, compiled concise figures of both outward and inward supplies, input tax credits, tax liabilities, and tax payments. It was automatically generated from GSTR-1 and GSTR-2 filings but has been deferred since September 2017.

GSTR-3B (Consolidated Return)

GSTR-3B, a monthly summary declaration for normal taxpayers, summarizes outward supplies, input tax credits, and tax dues. Before submitting GSTR-3B, it is critical to reconcile sales and ITC details with GSTR-1 and GSTR-2B records.

Submission Deadlines

• Monthly: Due by the 20th of the month following the reporting month for taxpayers with an annual turnover above Rs. 5 crore.
• Quarterly: Due by the 22nd of the month following the quarter for ‘X’ category states and by the 24th for ‘Y’ category states for taxpayers with a turnover of up to Rs. 5 crore in the QRMP scheme.

GSTR-4 (Return for Composition Scheme Taxpayers)

GSTR-4 is the yearly return for those under the Composition Scheme, due by April 30th of the subsequent financial year. GSTR-4 has replaced the prior quarterly submissions, with taxpayers now submitting a simplified challan via Form CMP-08 by the 18th following each quarter’s end

Under the Composition Scheme, businesses with goods turnover up to Rs. 1.5 crores may pay tax at a predetermined rate on their turnover. Service providers with a turnover of up to Rs. 50 lakh can opt for a similar benefit

GSTR-5 (Return for Non-Resident Foreign Taxpayers)

GSTR-5, required by non-resident foreign taxpayers engaged in business in India, details their outward and inward transactions, adjustments, tax liabilities, and payments, with submissions due by the 20th of each month

GSTR-5A (Return for OIDAR Service Providers)

GSTR-5A is the monthly summary for providers of Online Information and Database Access or Retrieval Services, due by the 20th of every month.

GSTR-6 (Return for Input Service Distributors)

Input Service Distributors must file GSTR-6 monthly, reporting the ITC received and allocated, including detailed documentation related to the distribution of credits, by the 13th of each month.

GSTR-7 (TDS Return)

Entities must deduct TDS under GST file GSTR-7 monthly, documenting TDS deducted, due and paid amounts, and any TDS refunds, with filings due by the 10th of the subsequent month.

GSTR-8 (Return for E-commerce Operators)

E-commerce operators under GST must submit GSTR-8 monthly, recording the supplies made and tax collected at source, due by the 10th of the following month.

GSTR-9 (Annual Return)

All GST-registered taxpayers must file GSTR-9 annually, summarizing their outward and inward supply details, taxes due, and paid. The due date is December 31st of the year after .

Conclusion

With this, you must now be well-versed in what GST is and the various types of GST levied in India. The introduction of the tax has significantly transformed the indirect tax landscape in India. Goods and Services Tax has not only simplified indirect tax levy but has also made it easier to understand. The GST Council, the constitutional body responsible for the governance of the indirect tax system in India, is also very proactive and meets regularly to discuss and make appropriate changes to the tax system to make it more streamlined.