Do prepayments include gst in all transactions ??? Or is depend on questions? se

Question

Do prepayments include gst in all transactions ??? Or is depend on questions? services 6) Super Dry-Cleaning Services purchased a 6-month insurance policy for $1,500 (plus GST) on 1 June. The purchase of this was recorded by debiting Prepaid Insurance REQUIRED: Prepare al adjusting journal entries for the year ended 30 June 2017. Rent expenes boo t) Salory expenses 56 Rert r able ho terest expenes 35o st Pyabte 350 5) Unearned Revenue 8so clearn servies RPven ue Ss o 6Di 7nsanre exenses 5 Cr: prepaid Insutanie 2s0

Explanation / Answer

Prepayment transactions will not include GST.

When passing an entry for prepayent for insurance the entry will be as follows:

Prepaid Insurance A/c Dr (insurance amount excluding GST)

GST Paid A/c Dr (GST amount)

To Cash A/c (Insurance amount including GST)

If the prepayment is for 12 months or less then pass the above entry.

If prepayment is for a period more than 12 years then the tax amount has to be recorded as prepayment for tax.

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