ANSWER ID:9274

This support note explains how to deal with the GST component of a sale that has been made under a lay-by arrangement. The timing of income and collection of the GST will depend on the reporting method chosen.

How do I record transactions to correctly report GST?

Cash method - Record the lay-by transaction as an Order. 1/11th of any payments made against the order will be displayed in the GST Cash reports as per the ATO requirements.

Non-cash (Accruals) method - record the lay-by as an Order and enter payments against the order. No GST liability will be recorded until the final lay-by payment and the order is converted to an invoice. Then the transaction will display in the GST Accrual reports.

Example

Peter Peugeot runs a local bicycle store. A common occurrence each year around August and September is for parents to lay-by a bike for their children's Christmas present. Santa Claus purchases a bike costing $300 including GST for his son and makes monthly payments of $100 until the bike is paid off. The cost to Peter for the bike is $200 plus GST, $220 in total.

The tasks for processing the lay-by are:

Task 1 - Setting Up for Lay-bys - Perpetual Inventory Only

Create an asset account called Lay-by Inventory. Also create a new item(s) in the Items list to track stock being held in lay-by. Make the Linked Asset Account within the newly created Lay-by item(s) the asset account just created. See our example below.

IMPORTANT: Perpetual Inventory= Items marked as 'I Buy', 'I Sell', & 'I Inventory'

Periodical Inventory= Items marked as 'I Buy' & 'I Sell' only

Note for Perpetual Inventory Users: If you have more than one line of inventory off site at a time, you will require more than one item to be set up. Your software uses the average cost system of inventory, so grouping different lines of stock with different unit prices will dramatically effect the unit cost price of inventory held in Lay-by. In such a case, an idea would be to create new item numbers using the original item number but adding the letters LB to the item number.

Task 2 - Transferring the Stock to Lay-by Inventory (Perpetual Inventory Only)

Go to the Inventory command centre. Create an Inventory Transfer (Build Items) to move the stock from the trading stock item to the Lay-by item. To do this, place a negative in the Quantity column for the trading stock item and a positive in the Quantity column for the Lay-by item. Ensure that the Amount for the Lay-by item is the same as the figure the system generates for the trading stock item. See our example below.

Task 3 - Recording the Sale

Go to the Sales command centre and click Enter Sales. Select the applicable customer (in our example this is Santa Claus) and record the sale. See our example below.

Perpetual Inventory: Record an Order using the Lay-by item code

Periodic Inventory: Record an Order for both cash and non-cash GST reporting.

You may want to change the terms of the individual sales invoice to reflect the date that the lay-by must be picked up by.

Task 4 - Recording the lay-by payments from the customer

Go to the Sales command centre and click Receive Payments. Select the applicable customer and enter the payment amount against the applicable invoice. In our example below Santa Claus is paying $100 against the lay-by. When the final payment is made, record the order as an Invoice. For accrual reporting, the GST liability will be recorded at this time.

What happens if the customer defaults on the lay-by?

If the customer was to default on the lay-by, the customer may require a refund of deposits made. Often when a default is made on a Lay-by, a default charge is levied against the refund. Let's say that Santa Claus defaults on his lay-by. Peter Peugeot will refund Santa the money he has already paid on the lay-by ($100), but will also levy a lay-by default charge of $20 including GST, against the refund. This will leave Santa a refund of $80.

In such a case follow the below steps:

1. Create an Income account in the Accounts list to track income from lay-by default charges. See our example below.
2. Create a new item in the Items List to record the lay-by default charge. The item should be marked as 'I Sell' only. Make the Income Account for Tracking Sales the account just created. See our example below.
3. Record a sales invoice to record the Default on Lay-by charge and the 'return' of the lay-by item. On the first line enter the default lay-by charge item for the relevant price. On a second line enter a negative amount of the lay-by goods for the original sales amount - in our example this would be $300. If a negative balance is left after charging the default fee, a credit will be created for the customer. See our example below.
4. Go to the Sales command centre and click Sales Register then click the Returns & Credits tab. Click the credit note created in the previous step and click Apply to Sale. This allows you to apply the total amount to the original sales invoice. See our example below.
   
   This will create another credit note for the difference.
5. Still in the Sales Register (on the Returns & Credits tab), click the credit note created in the previous step and click Pay Refund. This allows you to refund this credit to the customer. Ensure the refund is made from the appropriate account, such as General Cheque Account or Cash Drawer. See our example below.
6. Go to the Inventory command centre and click Build Items. In older versions this would be Inventory Transfer. This allows you to return the Lay-by Item to trading Stock (perpetual inventory only). Enter a negative value in the Quantity column for the lay-by item and a positive value in the Quantity column for the trading stock item. Ensure that the amount figure for the trading stock is the same as the figure the system generates for the lay-by stock. See our example below.