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The Finance Bill 2022 added a new clause to the Central Goods and Services Tax (CGST) Act, 2017, replacing Section 38. The new Section 38 was suggested to tighten input tax credit further (ITC) claims due to the degree of ITC fraud that occurs via bogus organizations and fraudulent invoices. The requirements of this section will also assist in preventing any legal disputes.

The amended Section 38 has not yet been enacted by parliament or communicated to taxpayers. However, it may become part of the GST law in the coming months.

Let’s decode the new Section 38 and see how it affects a company’s ITC claims. The GST course in Ahmedabad are gaining utmost popularity in the recent times.

How does the existing section 38 Govern ITC claims?

The current Section 38 of the CGST Act has captioned ‘Furnishing details about inbound supplies.’ It controlled the provision of details of outward supplies (i.e., sales) by a provider, followed by the recipient (buyer) receiving such inward supplies (i.e., purchases) and claiming ITC on the same.

The extant part was built on a two-way communication paradigm but was never used. The seller provides details of outward supplies under Section 37(1), such as the GSTR-1. The buyer is then obliged to accept/modify/delete these supplies in their inward supplies report (i.e., the GSTR-2), which is subsequently transmitted back to the provider within the specified time frame.

Finally, the clause states that the receiver taxpayer must balance their inner supply with their supplier’s external supplies. If an error or omission is discovered, it should be reported to the provider. Furthermore, any tax and interest on any short payment must be paid to the government by the due date.

Understanding the revised section 38

The Finance Bill 2022 proposes a revised Section 38 headed ‘Communication of information of inbound supplies and .’ It limits input tax credit claims in several ways and inhibits two-way contact between the supplier and the customer (although it was never followed).

The new section’s objective is expressed in two subsections:

The first subsection mandates that the information of outbound supplies given by a taxpayer’s suppliers be made accessible in an automatically generated statement, i.e., the GSTR-2B. (It should be emphasized that this mechanism is already in place; the change in legislation will now support the current CGST Rules.)

The GSTR-2B is prescribed in the second subsection. In other words, it informs taxpayers about the situations in which they may and cannot claim an input tax credit (eligible and ineligible ITC).

Some of the limits under this provision involving ITC ineligibility include circumstances where the supplier has just registered under the GST law, has failed non pay their taxes, or has unlawfully obtained additional ITC, to mention a few. In the next portion of our article, we shall decode each sentence in subsection (2) using an example.

Decoding the clauses of the revised section 38

The updated Section 38 subsection (2) is significantly more difficult for taxpayers to comprehend. So, let’s go over this part clause by clause.

1. Subsection (2) clause (a) stipulates the inbound supplies and applicable ITC for the recipient (buyer) to claim in the GSTR-2B statement. In other words, ITC is eligible.
2. Clause (b) is more complicated. It comprises the data of inbound supplies provided by the provider in the GSTR-2B, for which no ITC may be claimed. In other words, ITC is ineligible. This clause is divided into six sections.

(i) The first portion states that ITC cannot be claimed on supplies made by a provider during the required period* following registration under the GST law.

(ii) The second section states that ITC may not be claimed on supplies provided by a provider who has not paid their taxes and has defaulted for a specified time.

(iii) The third section states that ITC cannot be claimed on deliveries for which the provider has a tax obligation more significant than the tax paid during the specified period and within the defined limit.

(iv) The fourth section states that ITC may not be claimed on supplies given by a provider if the supplier claimed ITC over what was allowed under clause (a). This section also states that the excess is decided by the stipulated limit*.

(v) The fifth section states that ITC may not be claimed on supplies provided by a provider who has failed to pay their tax due by Section 49(12), subject to the criteria and limits prescribed*.

(vi) The sixth section states that ITC may not be claimed on supplies provided by a supplier if the provider is a member of such other class of individuals as prescribed*.

Impact of ITC claims once the revised section 38 gets notified.

Most taxpayers may be perplexed as to why they cannot collect input tax credits since their suppliers are newly registered or have defaulted. When GST was implemented, it guaranteed taxpayers a continuous supply of input tax credits. Let us explain why this part was created in brief.

Since the implementation of GST, input tax credit claims have been a source of tax evasion and fraud. Every year, the government loses hundreds, if not thousands, of crores to fraudulent taxpayers who claim an input tax credit based on forged invoices. These invoices are created by firms set up expressly for this purpose and subsequently shut down. As a result, the government is now proposing this updated Section 38 to eliminate all ITC-related fraud.

When this section is notified, three things will change for taxpayers.

1. To guarantee that their ITC claims are always eligible and correct, their reconciliation procedures will need to become more frequent, dynamic, and preferably automated.
2. Taxpayers must guarantee that they only do business with compliant providers. Again, the market’s automated GST solutions allow taxpayers to assess their supplier’s compliance BEFORE onboarding them. Higher ITC claims result from a complying supplier.
3. Suppose a taxpayer does not match 100% of their input tax credits or, worse, if the supplier is non-compliant (i.e., the default in paying taxes or claiming excess ITC). The receiving taxpayer (buyer) is not permitted to claim the ITC that is legally owed to them. This will raise their GST cash burden and harm their working capital.

How many taxpayers make their ITC claims process more efficient
This new part has not yet been approved by parliament. If enacted as is, taxpayers must establish a rigorous framework of vendor verification and a reasonable ITC claim procedure.

With automation, this may be accomplished in only three steps:

• Configure the ERP to collect all invoice and vendor information.
• Before onboarding, verify vendor compliance.
• BEFORE sending payments to suppliers, do a dynamic matching with the GSTR-2B. If suppliers fail to comply, the buyer has the option of withholding pay.

Tally ERP 9 is an accounting software widely used by many businesses because it includes numerous useful features for easy record maintenance and data analysis. Tally.ERP 9 provides transaction recording, inventory management, and statutory compliance features. Accounting Vouchers are essential for better record keeping and creating a foundation for data analysis.

What is a voucher in Tally?

In Tally, a voucher is a document containing all of the details of a financial transaction and is required to record in the books of accounts. They are simple to create and modify.

Types of Tally vouchers are available in the ‘Gateway of Tally’ under ‘Transactions’.
Tally has a few predefined vouchers that can be viewed by going to Gateway of Tally > Display > List of accounts > Ctrl V [Voucher types].

Voucher types in Tally

Accounting vouchers and inventory vouchers are the two types of vouchers in Tally.

Tally accounting vouchers are further classified as follows:

• Sales Voucher
• Purchase Voucher
• Payment Voucher
• Receipt Voucher
• Contra Voucher
• Journal Voucher
• Credit Note Voucher
• Debit Note Voucher

Tally inventory vouchers are further classified as follows:

• Physical Stock Verification
• Material In and Material Out Voucher
• Delivery Note
• Receipt Note

Tally Accounting Vouchers

1. Sales Voucher

The sales voucher is used in tally to record sales. In tally, it is one of the most commonly used accounting vouchers. Invoice mode and Voucher mode are the two accounting modes in sales vouchers.

2. Purchase Voucher

When you buy a product or service, you make a purchase entry. This is recorded in a tally using the purchase voucher. It is also one of the most commonly used tally vouchers.

3. Payment Voucher

Tally supports every aspect of a payment transaction. You can get all the necessary information, such as the instrument number, bank name, available balance, and so on.

4. Receipt Voucher

When you receive payment, you can enter it into the receipt voucher.

5. Contra Voucher

Contra Voucher is used when either side of the transaction involves cash, a bank, or multiple banks.

6. Journal Voucher

This voucher can be used for a variety of purposes. Some people use it for sales, purchases, and depreciation; any adjustment entry in Tally can also be done with this voucher.

7. Credit Note Voucher

When there is a sales return transaction, a Credit Note entry is made. By default, this voucher remains deactivated. By pressing F11 and configuring features in invoicing, you can activate it.

8. Debit Note Voucher

When a purchase return transaction occurs, a Debit Note entry is generated. By default, this voucher is disabled. You can use F11 to activate it and configure its features.

Tally Inventory Vouchers

1. Physical Stock Verification

This voucher is used to keep track of a company’s inventories. In general, businesses count physical stock verification regularly and keep a record of it using this voucher. This helps to keep inventory under control.

2. Material In and Material Out Voucher

This voucher is widely used in businesses that employ people. It aids in the tracking of inventory sent and received by a worker. For better record keeping, include information such as the item’s name, price, and quantity.

3. Delivery Note

This voucher is used to document the receipt of goods. It is also known as a Delivery Challan.

4. Receipt Note

This voucher is used to track the receipt of goods from vendors. It also has extra features that allow you to enter the vehicle number, dispatch document number, bill of lading, and other information.

E-Mail Configuration in Tally

Tally’s e-mailing capability is being set up. ERP 9 is a one-time installation. ERP 9 is simple and easy to use because the user can select some of the most commonly used e-mail service providers, and various details such as Server Address, Port Number, and Authentication details are pre-filled based on such selection.

Suppose you use an e-mail service provider other than those listed in Tally.ERP 9, you can select User-defined, enter the necessary information, and begin e-mailing reports immediately.

After successfully configuring e-mail in Tally.ERP 9, you can send ledgers, pay slips, definitive statements, confirmation of accounts, reminder letters, and other documents to various parties/customers without using an external e-mail application.

To configure E-Mail in Tally.ERP 9, follow these steps:

• Navigate to Tally Gateway > F12: Configure > E-Mailing.

1. Choose the required E-Mail Server from the list of available Common Mail Servers. When choosing a Common Mail Server, the server address and port number are pre-filled in the Server Address field.
2. Enter the name of your SMTP server, followed by the port number, in the Server Address field (E.g., smtp.gmail.com:465 or smtp.yahoo.com:455). For more information, contact the service provider or network administrator.
3. The option Use SSL is configured automatically based on the E-Mail Server selected. This option communicates over secure networks and sends emails through secure mail servers. E-mail service providers such as Gmail, Hotmail, and Yahoo Mail communicate via a secure network/server.
4. The option Use SSL on Standard Port is automatically configured based on the E-Mail Server selected. Some providers communicate over a secure network using the default port (port 25).
5. The From field displays the name of the company specified in the Company Creation screen by default.
6. The From E-mail Address field displays the e-mail address entered when the company was created. If you haven’t already done so, or if you want to change your email address, enter it here. This will not be added to the company master or saved for future reference.
7. If the mail server requires authentication, enter the user name and password in the respective Authentication User Name and Password fields. (For more information, please contact the System Administrator.)
8. Choose the required attachment format from the Formats list. The attachment in the format chosen is emailed to the recipient.
9. Set the option Show additional details for an e-mail address to Yes to display further information when e-mailing a report and select the e-mail address in the To E-Mail Address or CC To field.

Tally. ERP 9 is now set up to send emails. Click here to check out Tally Prime Course in Ahmedabad.

When running a business, one of the most important things to keep track of is how much money comes in and whether or not that’s enough to cover all the costs that come with running the business. Even though it’s easy to think of revenue as “automatic” when a good or service is sold or exchanged, it’s not always as easy to actualise it. Only when income comes as a cash payment right away does it count as income. Instead, a business is more likely to have accrued revenues. An accountant will usually record changes to accrued payments by making debit and credit journal entries at set times. This makes it simpler to keep track of accumulated income and maintains the balance sheet in good shape.

What Does Accrued Revenue Mean?

Accrued revenue is the money a business has earned from a sale that has already happened, but the customer hasn’t yet given them the money.

A company’s net payment terms with its clients or customers often lead to accrued revenue. In this case, if a company gives all of its clients net-30 payment terms, a client could decide to buy an item on April 1, but they wouldn’t have to pay for it until May 1. For example, if the item costs $100, the company would record $100 in earned revenue for April. Then, when May 1 comes around and the payment is made, the company would make an entry of $100 to account for the cost.

How are Changes to Accrued Revenue Recorded?

When accrued revenue is first recorded, the amount of accrued revenue is shown on the income statement as revenue. The exact amount is taken from an account for accrued revenue on the company’s balance sheet, which could be in the form of accounts receivable.

When the customer pays, the company’s accountant will change the amount of money that has already been earned. The accountant would make an altering journal entry in which the aggregate of cash received from the customer would be deducted from the cash account on the balance sheet and credited to the accrued revenue account or accounts receivable account, lowering that account.

This standard practice of maintenance the balance sheet in balance keeps track of the correct amount of revenue earned keeps track of the proper amount of cash received and doesn’t change the amount of payment shown on the income statement.

Accrued Revenue Examples

It’s excellent to understand how accrued revenue works on a theoretical level. But it won’t help you if you can’t put it into action. Here are some examples of using what you know about accrued revenue in real-world business situations.

Example 1

Let’s say that customer Y deals with company ABC to get 24 pieces of machinery in a year. Since this is a long-term project, company ABC can choose to count each piece of equipment or set of equipment as a milestone for which they will get paid when the project is done.

Whether company ABC bills for the service after each milestone or at the end of the year, it will still be counted as accrued revenue. But in the books of client Y, the same thing will be written down as expenses that have already been paid.

Example 2

You run a consulting business and charge $20 per hour for your services. In one project, a business client wants 100 hours of consultations done in four months. You have already helped people for 50 hours by the end of February. But you won’t send the $2,000 bill until the project is finished at the end of April.

For January, February, March, and April, you will record $500 as income that has already been earned. When you finally send the bill, you’ll turn it into an account receivable. When the payment comes in, you’ll turn it into cash.

How to Interpret?

On the balance sheet, earned revenue is shown as an asset, but it’s not always as valuable as cash. To turn it into cash, you have to bill the customer and get the money from them. The working capital cycle can be hurt by having a lot of past-due payments. It could mean a business isn’t doing a good job of getting customers to pay for its services.

This idea is needed to ensure that income and costs balance. If a business doesn’t have any accrued revenue, its initial revenue and profits may be too low. This doesn’t show what the company is really like. Also, suppose you don’t use these accrued revenues. In that case, your revenue and profit recognition may be lumpier since revenue is only recorded when invoices are sent, which is usually after a long time.

Presentation of Accrued Revenue

The debit balance in the account for past-due bills shows up on the balance sheet as a current asset. The change in the accrued revenue account each month is shown on the income statement at the top of the information in the revenue line item. It is rarely shown on the income statement apart from billed revenue.

Conclusion

When we think about accounting, we think about the cash-basis method, in which income is recorded when the amount is received, and expenses are recorded when bills are paid. This isn’t the only way to do accounting, and most businesses don’t use it. Instead, they use the accrual method of accounting, in which income is recorded when it is earned, regardless of when it is received, and expenses are recorded when they are made, irrespective of when they are paid. The accounting training in Ahmedabad is getting quite famous recently.

The first thing you need to know is that accrued revenue is shown as the revenue on the income statement when accumulated revenue is first recorded. Accounting for accrued revenue may be done through accounts receivable, in which case a specific sum is deducted.

It is only after a consumer makes a payment that an accountant adjusts on behalf of the business. Accrued revenue or accounts receivable would be lowered due to an accounting entry in which the cash received from the client would be removed from the cash account on the balance sheet.

What Is Meant By Accrued Revenue?

When a business makes a sale, but the consumer hasn’t yet paid for it, the money they’ve already made is known as accrued revenue.

Earned revenue is frequently the result of an organization’s net payment arrangements with its clients or consumers. Customers can buy an item on April 1, but they won’t have to pay for it until May 1 if a company gives all of its customers net-30 payment terms. Suppose the item costs $100, and the corporation records $100 in revenue in April due to the sale. A $100 adjustment would then be made on May 1, when the payment is made, to account for the price.

The corporation that makes the purchase, on the other hand, records the transaction as an incurred expense in the liability area of the balance sheet.

How Are Adjustments Recorded for Accrued Revenue?

There is a distinction between accrued and actual revenue on the income statement. Accounting for accrued revenue may be done through accounts receivable, in which case a specific sum is deducted.

Customers pay, and the company’s accountant recalculates the amount of money the company has previously made. Cash received from customers would be taken from the company’s balance sheet and added to its accumulated revenue or accounts receivable, which would lower the latter’s balance.

No matter how much money is produced, how much cash is received or how much payment is recorded on a company’s income statement can be accurately tracked using this standard method.

When does Accrued Revenue Occur?

The term “accrued revenue” refers to the discrepancy between when products or services were paid for and delivered.

When situations like these happen:

• Lending money to another corporation or person is known as a loan.
• The “% of completion” method is used for long-term projects to record revenue.
• In the event of a large order, Money is made dependent on the achievement of milestones.

There are Two Basic Ideas in Accrual Accounting

1. In the period the revenue is realized and earned, it should be recorded as income. After the goods or service is delivered, revenue is earned.
2. Generally, costs and revenues should be reported in the same accounting period. Spending is “matched” to revenue, which is a technical term.

Deferred vs Accrued Revenue

Deferred revenue occurs when a corporation receives an advance payment from a consumer before the product or service has been delivered. After the company gets the cash, deferred revenue is accounted for.

When it comes to Accrued Revenue, it’s recognized before any money is received.

Look at how Accrued Revenue and Deferred Revenue are different:

• All accrued revenue is entered into the system at the same time. It’s a type of income earned over a more extended period.
• Cash receipts are the result of revenue accrual. Receivables and payments are recognized after the monetary transaction, known as “deferred revenue.”
• Deferred income is a liability because it is unearned revenue. Accounts Receivables are a form of asset accounting for accrued revenue.

Accrued Revenue for SaaS Accounting

SaaS typically generates income when the following occurs:

• Upgrading or downgrading your system is an option
• During the term of the subscription, any additional features are purchased
• Set-up and migration fees are examples of one-time charges

A three-user “Yoohoo” plan costs $600 and is billed every three months to ABC’s marketing agency. Two more users are needed to access the software twenty days into the subscription period. Yoohoo was also asked to conduct a private training session for the agency.

The ABC agency is not instantly charged for the costs of adding two new users and conducting a training session. Instead, Yoohoo will see an increase in monthly revenue due to this transaction. This income will be converted into accounts receivable when the contract is renewed in the next quarter.

Is Accrued Revenue an Asset?

The term “Accrued Revenue” refers to a bill sent to a customer by a business for products or services received. Accrued Revenue” is considered an “Account Receivable” until it’s paid in full by the client. As a result, it is classified as a current asset on the balance sheet.

A considerable Accrued Revenue indicates that a business isn’t getting paid, which might be a concern for cash-flow reasons.

Why is Accrued Revenue Important?

For businesses that use accrual accounting, forecasting expenses and revenues in real-time is an essential benefit of recognizing revenue that has already been reaped. The company’s profitability may be tracked, and potential problems can be identified early on.

Since SaaS companies sell pre-paid subscriptions for services provided over time, the accrual foundation of accounting is the preferred method. The service has been rendered, and Money has been “earned” in SaaS. Revenue wouldn’t be recognized until invoices were sent out if SaaS didn’t use accumulated income. This would lead to a decrease in the number of cases in which payment is discovered. This would not demonstrate how the company is doing.

The amount of money a company has made is a good indicator of its long-term success. In addition, it aids in the understanding of how sales impact earnings and long-term expansion.

Conclusion

Accrued Revenue is a concept that is important to understand for most people in business. It is even more important for those doing accounting courses since this is one of the basic concepts or terms that you must know when you get into the field of accounting. The courses for the same are on an upward trend thus this field can be considered quite lucrative. Accountant Course in Ahmedabad is a must-try for this fieldset.