CONFUSED- PURCHASE AND SALES RETURNS?!

[One Step at a Time]

Hi guys 

As you can tell from the subject, I'm hella confused about purchase and sales returns. Would appreciate anyone's help 

I know that both of those transactions don't affect the Cash Flow Statement, so the GST on them aren't recorded in the Cash Flow Statement

But we record record the impact of sales and purchases returns in the GST ledger account though! (Isn't the collection and payment of GST is cash?) Since we do so, shouldn't the GST on sales and purchases returns thus impact the Operating Activities section of the Cash Flow Statement?

[The Usual Student]

Hi guys 

As you can tell from the subject, I'm hella confused about purchase and sales returns. Would appreciate anyone's help 

I know that both of those transactions don't affect the Cash Flow Statement, so the GST on them aren't recorded in the Cash Flow Statement

But we record record the impact of sales and purchases returns in the GST ledger account though! (Isn't the collection and payment of GST is cash?) Since we do so, shouldn't the GST on sales and purchases returns thus impact the Operating Activities section of the Cash Flow Statement?

Hi ya!

So I reckon your problem is less to do with PURCHASE AND SALES returns as it is to do with the concept of GST
You are correct that we don't record P/S returns in the CFS because it isn't cash based.

However, when a P/S return occurs we need to account for the GST we either don't need to pay anymore or owed by the ATO.
You see when we ( for example purchase returns ) return a stock to our creditors, we need to undo the GST we paid on that stock because we are not owed by the ATO anymore!

Hopefully I am highlighting the distinction here!
We don't Collect or Pay gst with S/P returns but we do undo our previous payments and collections of GST.
We are undoing GST transactions in a sense.

Also, keep in mind that PURCHASE and SALES returns are assumed to be on credit so the GST we are undoing wont be cash based but is in fact just a reduction in the gst we owed or expected.

[One Step at a Time]

WOW you are a legend!! Thanks so much

Explained it so clearly that it just clicked with me.... can you become my teacher?  

I've actually got another question which is about statements. Would you be able to explain it?

How do you read a statement? How do you tell who is the creditor, debtor, supplier, etc.? Is it similar to an invoice where the seller is at the top, and the other name is the buyer's? (I tried to attach a statement here, but it said the file was too large)
 

[One Step at a Time]

One more question... sorry, I'm just full of questions 

Question: Put the following in the correct order. (Left is first).

Correct answer: Trial Balance, Correcting and adjusting entries in general journal, Post to general ledger, Adjusted Trial Balance, Closing entries
My incorrect answer: Post to general ledger, Trial Balance, Correcting and adjusting entries in general journal, Adjusted Trial Balance, Closing entries

I thought businesses posted the totals of the journals to the ledger at the end of the month, before preparing the Trial Balance though? Thanks again everyone 

[The Usual Student]

WOW you are a legend!! Thanks so much

Explained it so clearly that it just clicked with me.... can you become my teacher?  

I've actually got another question which is about statements. Would you be able to explain it?

How do you read a statement? How do you tell who is the creditor, debtor, supplier, etc.? Is it similar to an invoice where the seller is at the top, and the other name is the buyer's? (I tried to attach a statement here, but it said the file was too large)

Haha thanks!
For statements, it is exactly like an invoice!
So you need to know the name of the business or the supplier and then check if the name is at the top ( the business issued it) or at the bottom ( the business received it)
So if business name is top - we received stock from our customer who didn't want it anymore so it's a sale return and we issued the credit note.
So if business name is bottom - we gave back stock to the supplier who issued a credit not and we receive iced it

Essentially, who Evers name is at the top is who issued the credit note. Using that info you can deduct what it is.

[The Usual Student]

One more question... sorry, I'm just full of questions 

Question: Put the following in the correct order. (Left is first).

Correct answer: Trial Balance, Correcting and adjusting entries in general journal, Post to general ledger, Adjusted Trial Balance, Closing entries
My incorrect answer: Post to general ledger, Trial Balance, Correcting and adjusting entries in general journal, Adjusted Trial Balance, Closing entries

I thought businesses posted the totals of the journals to the ledger at the end of the month, before preparing the Trial Balance though? Thanks again everyone 

Yeah essentially your correct but I think the question is referring to a slightly different approach.
when they say "post to general ledger" what they mean is post the BDAs to the general ledger. We do BDAs at the END of the reporting period soooooooooo the trial balance will be completed by then.
Hence TB must be before you post
Remember that the trial balance = everything except BDA
Whilst Adjusted trial balance = everything including your BDA

Your thinking of "normal transactions" when talking about posting to the general ledger.
The question is talking about "BDAs"
So pretty much everything before the trial balance is skipped by the question hahaha

Also we need the trial balance before we do BDA or any correcting entries because we can get details on depreciation and prepaid expenses and ect
We need those details before we can calculate how much has been consumed or used.

Yeah this question should have given you more details to be clear.

[One Step at a Time]

Actually can't thank you enough The Usual Student! Your explanations were super clear that it just clicked

My saviour for accounting, I'll scrape that 30 with your help 

[The Usual Student]

Actually can't thank you enough The Usual Student! Your explanations were super clear that it just clicked

My saviour for accounting, I'll scrape that 30 with your help 

hahah Thanks!