Topic 3: Bank reconciliation

and GST preparation

GST Preparation
Introduction to GST in Xero
30m
In Topic 1, we learnt how to set up the GST detail for the business.
This included entering the GST number, accounting basis, filing
frequency, the type of GST return that is used and the next period
due.

If you want to review this information, go to these pages:Introduction to

GSTGST in Xero

Let’s find out more about goods and services tax (GST) in Aotearoa
New Zealand.

GST is a tax on the supply of most goods and services in Aotearoa

New Zealand. GST registered businesses must pay the IRD the
difference between the GST they collect on their supplies and the
GST they pay on their purchases. Only registered businesses can
charge GST.
Introduction to GST in Xero
30m

In Topic 1, we learnt how to set up the GST detail for the business.
This included entering the GST number, accounting basis, filing
frequency, the type of GST return that is used and the next period
due.

If you want to review this information, go to these pages:Introduction to

GSTGST in Xero

Let’s find out more about goods and services tax (GST) in Aotearoa
New Zealand.

GST is a tax on the supply of most goods and services in Aotearoa

New Zealand. GST registered businesses must pay the IRD the
difference between the GST they collect on their supplies and the
GST they pay on their purchases. Only registered businesses can
charge GST.
check_box

GST
Non-Assessed

Status: Done
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GST charged on goods and services by a business is income for the
business.
Responses


True
 True - no response given


False
False - correct
The correct answer is False.

When you receive GST from your customers, you hold this money
to pass on to the IRD. GST is not income for the business.
Previous attempts expand_less

Submitted on Status Score View submission

5 May 2024 Done 1/1 View

Before getting further into this topic, take some time to become
familiar with GST terminology. The more you interact with GST and
these terms, the more comfortable you will be.
ENTER FULLSCREEN

Rate of GST
The current rate of GST is 15%.
To calculate the amount of GST included in a GST-inclusive price,
multiply the price by 3/23.
To calculate the GST-exclusive price of an item, multiply the GST-
inclusive price by 20/23.
To calculate the GST-inclusive price of an item, multiply the GST-
exclusive price by 23/20 (or by 115%).

Example:
The GST-inclusive price of a lounge suite is $3,220.
The GST-exclusive price is $3,220 × 20/23 = $2,800.
Therefore, the difference is GST = $420.
Or alternatively $3,220 x 3/23 = $420.
The GST-inclusive price of a new car is $28,750. Calculate the
amount of GST included in the price.

Type your answer in the box below.

The amount of GST included in the price is $28,750 × 3/23 =

$3,750.

Zero-rated supplies are taxed at a rate of 0%. This is explained

later.
● Chris, from Chimney Sweep, has rung and explained one of his
friends said he did not have to be GST registered. He thinks this
would save him money and time. His sales figure for the next 12
months is expected to be $72,000. Complete the task below.

GST Registration for EDU Your Name Chimney Sweep

Explain to Chris, the requirements for GST – you need to explain
when GST registration is required, what the taxable period is and
the difference between invoice basis and payments basis.
ST REGISTRATION FOR EDU YOUR NAME CHIMNEY SWEEP
Non-Assessed
Status: Done
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Explain to Chris, the requirements for GST – you need to explain
when GST registration is required, what the taxable period is and
the difference between invoice basis and payments basis.
If his business turnover exceeds $60,000 in a 12 months period, it is compulsory to register GST
registration.
18 / 500 Word Limit
As the business is expected to earn over $60,000 in turnover in
the next 12 months it is required to be GST registered.

Chimney Sweep currently has a monthly GST period on an invoice

basis. Two-monthly is common, but if Chris expects to have sales
of less than $500,000 in the next 12 months, Chris can change it
to a six-monthly GST return.

For the invoice basis, GST is calculated on the amount on the tax
invoices you’ve sent to your customers in that taxable period,
even if the customers haven’t paid you yet, and the amount on
the tax invoices you’ve received from your suppliers in that
taxable period, even if you haven’t paid them yet. The business
could also use the payments basis, as its expected sales are
unlikely to exceed $2 million in the next 12 months.

GST preparation in Xero

40m
Xero’s GST Return is designed to look like IRD’s GST Return.
There are several benefits of using accounting software for filing
GST Returns:

1. Once all the transactions have been entered and the bank
accounts reconciled, Xero does the GST calculations for you.
This automation of the process decreases the risk of
calculation errors.
2. Using Xero, or other accounting software, can be less time
consuming than calculating GST manually.
3. Xero will warn you if transactions in the period haven’t been
coded.
4. You can review a draft GST Return at any time during the
period.
5. The GST Audit Report can be reviewed to check for coding
errors.
6. Returns can be filed directly with IRD from Xero.
7. Late GST claims mean that any transactions entered for a
previous period after that GST Return was filed, will be
included in the next return.
An important part of getting the correct figures into your GST
Return is making sure that all account codes have been set up with
the correct GST tax code.

The five standard tax rates in Xero are:

1. 15% GST on Expenses.

2. 15% GST on Income.
3. GST on Imports.
4. No GST.
5. Zero-Rated.
As the names suggests, 15% GST on Expenses is used for
expense accounts and 15% GST on Income is used for income
codes. No GST is used for accounts that don’t include GST, such as
bank fees, interest and wages.
We won’t be using GST on Imports or Zero-Rated tax rates in
this topic, but you will learn about GST and zero-rated supplies
later in the course.

Once GST has been set up and you are confident that your
accounts have the correct tax rates, you are ready to start running
GST out of Xero. Watch File and Run Your GST (NZ) Using
Xero (Xero Accounting Software, 2020b) (3:31).

Footnote 1.
Xero Accounting Software. (2020b, May 21). File and run your GST
(NZ) using Xero [Video]. YouTube. https://youtu.be/Zt16Q0ChY1M
In this video, you will have a visual explanation of how to file GST
Returns in Xero.

The GST Return in Xero has up to three tabs:

1. The GST Return (similar layout to the paper IRD GST return
forms).
2. The GST Audit Report (a listing of all the transactions in the
return).
3. Late GST Claims (transactions that relate to earlier periods
that are included in the current period).
The Late GST Claims tab will only show if there are any late claims.

Now read the article Create and File a GST Return (Xero, n.d.-b).

Footnote 2.
Xero. (n.d.-b). Create and file a GST return. Xero
Central. https://central.xero.com/s/article/Create-and-file-a-GST-
return
This article contains a lot of information. You may find it useful to
come back to when you are preparing GST Returns.
GST RETURNS
Non-Assessed
Status: Done
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Which Xero menu is the GST Return found on?
Responses


Accounting.
Accounting. - correct


Business.
Business. - no response given


Payroll.
Payroll. - no response given


Dashboard.
GST RETURNS 2
Non-Assessed
Status: Done
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In order for late claims to be able to be included the previous
return must be:
Responses


Filed.
Filed. - no response given


Drafted.
Drafted. - no response given


Finalised.
Finalised. - correct


Published.
GST RETURNS 3
Non-Assessed
Status: Done
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The GST Audit Report can be used to check for all the
following, except:
Responses


Coding errors.
Coding errors. - no response given


Inconsistent coding.
Inconsistent coding. - no response given


Missing transactions.
Missing transactions. - correct


Incorrect GST rates.

GST reports in Xero

30m

Let’s look at the GST Audit Report and late claims in more detail.

GST Audit report in Xero

The GST Audit Report shows the individual transactions that make
up the amounts on the GST Return. It is created as a separate tab
when the GST Return Report is created.
You should always review the GST Audit Report before filing a GST
return to check for errors. Errors can be corrected by opening the
transaction and editing it, or by using find and recode if there
are multiple errors.

Open the transaction that you want to edit in a new tab. You can do
this by right-clicking on it and choosing Open link in new tab,
or hold down the Ctrl button and then select the transaction.
You will then be able to keep the GST Audit Report open. It can be
refreshed at any time to update the figures if you have made
changes.

This GST Audit Report can't be run by itself; it's created when you
run the GST Return.

To run the audit report:

1. From the Accounting drop-down menu, choose GST Return.

2. Open a draft return by clicking on it.

3. Choose the GST Audit Report tab.

You can:

 change the order of transactions in each section

 rearrange transactions by account type.

Rearranging the GST Audit Report can help you identify errors,
such as items that have been coded incorrectly or have the wrong
GST rate applied.
GST RETURN AND AUDIT REPORT
Non-Assessed
Status: Done
Reset replay
Open the Xero Demo Company (NZ).
From the Accounting drop-down menu choose GST Return.
Then open a draft return by clicking on it.
Once you have the draft return open, look at the figures in the
GST Return and see how it is set out like a paper GST Return.
Then choose the GST Audit Report tab.
Have a play in the GST Audit Report. Try changing the order of
transactions in each section by selecting the headings of any of
the columns. For example, if you click on the date column, you
can change the order from the newest to oldest or from the oldest
to newest. Similarly, you can click on the account heading to
rearrange transactions by account type. All columns can be
selected in similar ways.

Open two or three transactions and edit them. Then refresh the
GST Report and see how the figures have changed.
Have you explored the GST Audit Report in the Demo Company?

Late claims
Late claims are transactions from a period that has already been
finalised and have been entered or edited after the return has been
finalised. In an ideal world, we wouldn’t have any GST Late Claims,
but in the real world, it is relatively common to have to make
changes to a period where the GST has already been finalised. In
the next GST return period, they can be included as late claims and
are then shown as adjustments.

Filing GST returns in Xero

Once you have finished checking all the figures in the GST Audit
Report and Late GST Claims, you are ready to finalise, file and
publish your GST Return.
GST Returns need to be saved as final, to file directly from Xero
with the IRD. Even if not filed out of Xero, GST Returns should be
saved as final, so that any changes go in the late claims for the
next return.

It is easy to save the return as final. Simply click on the

green Save button at the bottom of the GST Return tab and
choose Save Final.
Once the return has been saved as final, it will move from your
draft returns to your final returns tab. You will also be able to file
the return directly with the IRD.

Filing the return with the IRD requires the GST-registered person to
have a myIR account. We won’t be filing returns with IRD in this
course as we don’t have a demo myIR to use.
As an alternative to filing the return directly with the IRD, the
figures from the finalised Xero GST Return can be entered into
myIR.

As well as filing the GST Return in myIR, it is good practice to

publish a copy of the GST Return in Xero. Publishing the GST Return
in Xero means you have a full record of all the transactions in the
GST period from when it was finalised, filed and published. The
process is like publishing other reports in Xero that you learnt
about in earlier topics. From the bottom left-hand side of the GST
Return screen, select the blue Publish button.

This will take you into the publish screen and from there you can
choose how you want the report to be published.

If after you have finalised a return and before it is filed with the IRD
an error is discovered, you can take the return back to the draft
stage and correct the error. See the red Revert to Draft button
above.
Filing a GST Return using Xero is straightforward, but it is still
important to ensure:

 GST has been set up correctly

 the GST Audit Report is carefully reviewed and any errors
corrected
 any late claims are checked and included.
Want to know more?
Watch the video GST Hacks & Audit Report in Xero (Next Advisory
(New Zealand), 2020) (3:11).

Footnote 4.

Next Advisory (New Zealand). (2020, May 22). GST hacks & audit
report in Xero [Video]. YouTube. https://youtu.be/jjq3TTmVsGY
This is like the Xero videos but prepared by an accounting firm.

Watch the full webinar Simplify GST Time with Xero presented by
Mitchell Davie-Martin (2021) (51:58).

Footnote 5.

Davie-Martin, M. (2021, October 28). Simplify GST time with

Xero [Webinar]. Xero. https://player.vimeo.com/video/639799225?
h=293a72132f
We can export the GST Return to PDF, Excel or Google Sheets. Click
on export at the bottom right and click on the type of report
required.

● Chris,from Chimney Sweep, has rung and asked if he could see

how much his GST is up-to-date for the April 2023 GST return
period.

Home work
VIEW CHIMNEY SWEEP’S GST RETURN FOR APRIL 2023
Non-Assessed
Open the Xero file for Chimney Sweep. Run the GST Return for
April 2023 and save as final. Review the GST Return and GST
Audit Report. There is no late claims report. Export the report as
an Excel file and upload here.

Chimney Sweep revision

30m

To reinforce our learning, it is a good time to revisit the Chimney

Sweep exercise. The Xero file also expires after 30 days, and we
need to be able to view reports in Topic 4, so we're asking you to
set up a new 30 days Xero trial version.

● Alex has asked if you could start a new trial version and reprocess
the transactions for Chimney Sweep.
CHIMNEY SWEEP REVISION ACTIVITY
Non-Assessed

1. Set up
a. Add a new organisation in My Xero:

i. Use the following organisational details:

 The name of your business is [Your Name] Chimney

Sweep (replace [Your Name] with your own first and last
name; for example, Kiri Davies Chimney Sweep.
 Your industry is Building and Other Industrial Cleaning
Services.
 Your country is New Zealand.
 There are no employees.
 Tick Yes, calculate GST on transactions for me.

ii. Select Start Trial.

iii. From the settings menu, choose users and set yourself up as
an advisor.

iv. From the accounting drop-down menu, choose conversion

balances. Then go into the conversion date tab and enter April
2023 as the conversion date.

b. Set up your chart of accounts:

i. Delete existing chart of accounts.

ii. Import the [Your Name] Chimney Sweep Chart of Accounts

CSV file. (Or this Excel file if the CSV file doesn't work).

iii. Add the Bank Account to include the following details:

 Your Bank is NZ Bank (add without a bank feed).

 The name of the account is Bank – [Your Name] Chimney
Sweep.
 The account type is Other.
 The account number is 123.
 The account code is 621.
 Currency is NZD.

c. Set up products and services:

Enter the following products for untracked items you sell as

shown in Table 3.1 below

Table 3.1: Products and services – untracked items you

sell

Code Name Sale Price - Excl GST Sales account

CC Chimney Cleaning $200.00 per clean 200 - Chimney Sweep Income

FR Fireplace Repairs $150.00 per hour 200 - Chimney Sweep Income

d. Set up GST

From the accounting drop-down menu, choose GST Return. Add

the following details:

 GST number: 111-111-111.

  Accounting basis: Invoice basis.
 Frequency: Monthly.
 Tax form: GST only (GST101).
 Next period due: 1 April to 30 April 2023.

2. Transactions
a. Enter accounts receivable transactions from Table 3.2
below in [Your Name] Chimney Sweep, noting:

 Create new contacts as needed (you do not need to enter

the billing addresses or other information).
 All selling prices are as per Table 3.2.

Approve all transactions.

Table 3.2: Accounts receivable invoice transactions for

April 2023

Customer Date of Invoice Due Date Code Quantity Total Amount in

Eaves Manor Ltd 3 April 2023 20 May 2023 CC 3 $690.00

P Winter 5 April 2023 20 May 2023 CC 1 $230.00

P Winter 10 April 2023 20 May 2023 CC 5 $1,150.00

b. Enter accounts payable transactions from Table 3.3

below in [Your Name] Chimney Sweep, noting:

 All bills have a due date of 20th May 2023.

 Create new contacts as needed (you do not need to enter
the billing addresses or other information).
 Change the bill so it shows ‘Amounts are Tax-Inclusive’.
  Approve all transactions.

Table 3.3: Accounts payable bill transactions for June 2023

Supplier Date of Bill Reference Items/Description Total Amount inc

Bunnings 3 April 2023 56985214 Cleaning supplies $575.00

Office Products 5 April 2023 478853 Stationery $172.50

Packaging House 14 April 2023 374 Cleaning supplies $103.50

c. Import and reconcile the bank statement

 Using the Bank – [Your Name] Chimney Sweep account,

import a statement using the Chimney Sweep Bank
Statement CSV file. (Or this Excel file if the CSV file doesn't
work).
 Reconcile all the transactions in the Business Bank Account
for the month of April 2023.

 Add new contacts as required.

 Match receipts to invoices as required.
 Match payments to bills as required.
 Enter cash transactions as required.

3. Reports
a. Prepare the following reports:

 Bank Reconciliation Summary Report 1 April to 30 April 2023

exported to Excel.
 GST Return Report, including GST Audit Report, for the 30
April 2023 GST period exported to Excel.

Upload your two Excel files.

Topic 3: Summary
2m

Ka mau te wehi! Kua tutuki i a koe tēnei kōwae. Fantastic! You

have completed this topic.

The main points we have covered in this topic are:

 the bank reconciliation process and its importance

 reconciling and reporting bank reconciliations
 preparing, reviewing and reporting a GST Return.

The skills you have learnt in this topic cover central skills for using
Xero and can be applied in any organisation that is using Xero.
Remember also that most of the skills can be transferred to some
extent to other accounting software.

Topic 3 assessment
This topic supports your learning for Assessment 1.

You’ll find the instructions for Assessment 1 in the assessments

section of this course.