Consult your accountant about the best practices for creating a GST reversal. This is generic information.
When do I have to create a reversal transaction?
Once a transaction has been locked into a GST return, any corrections that will result in a change to the GST amount need to be done in a reversal transaction.
The reason for this is any changes to the original transaction will invalidate the GST return and it will no longer match what was filed with IRD.
SCENARIO: You had a mechanic come to the farm to complete a service on the Tractor, but you also purchased a filter for your classic car which is owned in your personal name. You coded the entire transaction to Business and forgot to separate the different items.
How to create a reversal transaction to correct a code
1. Find the incorrectly coded transaction
In your Completed screen you can use the search function to locate the relevant transaction
2. Note down transaction details
You will need the date, amount(s), other party, and coding details. You will use these to create the reversal. An icon will appear in the bottom left of the screen to confirm that this transaction is included in a Finalised GST Return.
3. Create the reversal transaction
The reversal amount should be the opposite of the incorrect transaction while the date and codes used mirror the original details.
To correct an expense transaction, click on Record - Money In under the Bank Transactions in your Needs Action screen.
Enter the same Date, Amount and Other Party details as the original transaction.
Record the same category and extended codes that were allocated to the original transaction, and enter the same amount but as a positive (opposite to the original transaction).
Record a clear note for Journal Entry, or Reversal so that you or your accountant can easily search for this again later.
Enter the new lines and record the transaction with the item coding and GST coding entered correctly. These are negative figures that contra out the initial transaction. The total amount should equal $0.00.
The difference in the GST amount will be included at the bottom of the screen and will be processed in your next GST return to correct the initial error.
Click Save to process this new transaction.
How will this affect my GST?
This transaction will be pulled into the next GST report, the reversal transaction and the correction so that the GST portion can be claimed correctly for the business. The previous GST report remains unaffected by the reversal transaction.