Journal entries: GST set-off, year-end adjustments and losses (10 situations)
Monthly GST set-off and payment, interest on late GST, outstanding and prepaid items, provisions, closing stock, stock loss and rectification.
Set-off order: which credit can you use first?
- IGST credit must be used first, against IGST liability, then against CGST or SGST liability in any order (Rule 88A).
- CGST credit can pay CGST liability, then IGST liability. It can never pay SGST liability.
- SGST credit can pay SGST liability, then IGST liability. It can never pay CGST liability.
- Use CGST or SGST credit against IGST liability only after all IGST credit is used up.
Example: CGST credit ₹500, IGST credit ₹200, IGST liability ₹1,000. First use the IGST credit (₹200). Then use CGST credit ₹500 against the remaining IGST. Pay ₹300 in cash. You cannot use the CGST credit first while IGST credit is still unused.
1. Monthly GST set-off
Output: CGST 30,000, SGST 30,000, IGST 20,000. Input: CGST 18,000, SGST 18,000, IGST 25,000.
Use IGST credit first: ₹20,000 against IGST, and the balance ₹5,000 against CGST.
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Output IGST | 20,000 |
| Dr | Output CGST | 23,000 |
| Dr | Output SGST | 18,000 |
| Cr | Input IGST | 25,000 |
| Cr | Input CGST | 18,000 |
| Cr | Input SGST | 18,000 |
Balance to pay in cash: CGST ₹7,000 and SGST ₹12,000.
2. Paying the balance GST
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Output CGST | 7,000 |
| Dr | Output SGST | 12,000 |
| Cr | Bank | 19,000 |
Pay through a PMT-06 challan by the GSTR-3B due date.
3. Interest on late GST payment
18% a year on the tax paid late in cash (s.50).
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Interest on GST (not a penalty) | 450 |
| Cr | Bank | 450 |
Late fees for GSTR-3B or GSTR-1 go to Late Fee — GST.
4. Salary due but unpaid at year-end
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Salary | 1,20,000 |
| Cr | Salary Payable | 1,20,000 |
5. Insurance paid in advance
₹24,000 paid on 1 January for 12 months. At 31 March, 9 months are prepaid.
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Prepaid Insurance | 18,000 |
| Cr | Insurance | 18,000 |
6. Interest earned but not yet received
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Accrued Interest | 6,000 |
| Cr | Interest Income | 6,000 |
7. Provision for doubtful debts
5% of debtors of ₹8,00,000.
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Provision for Doubtful Debts (P&L) | 40,000 |
| Cr | Provision for Doubtful Debts (Balance Sheet) | 40,000 |
This is not deductible for income tax until the debt is actually written off.
8. Provision for income tax
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Income Tax Expense | 2,50,000 |
| Cr | Provision for Income Tax | 2,50,000 |
Adjust advance tax and TDS receivable against this provision when you file the return.
9. Stock lost to theft, fire or damage
Cost ₹50,000. ITC of ₹9,000 was taken.
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Loss of Stock | 59,000 |
| Cr | Purchases (or Stock) | 50,000 |
| Cr | Input GST (reversal) | 9,000 |
ITC on goods lost, stolen, destroyed, written off or given as free samples must be reversed (s.17(5)(h)). If insured, when the claim is admitted: Insurance Claim Receivable Dr → Loss of Stock Cr.
10. Rectifying an error through suspense
The trial balance was short by ₹5,000 because a sale to Mehta & Co. was posted to sales but not to the customer.
| Dr/Cr | Ledger | ₹ |
|---|---|---|
| Dr | Mehta & Co. | 5,000 |
| Cr | Suspense Account | 5,000 |
Clear the suspense account to zero before finalising. See Suspense account and rectification of errors.
Year-end order of work
- Bank reconciliation for every account
- GST ledgers matched to GSTR-3B and GSTR-2B
- TDS payable matched to challans and Form 168
- Outstanding, prepaid and accrued entries
- Depreciation
- Provisions (doubtful debts, tax)
- Closing stock valuation
- Review the trial balance, then lock the period
In Hisab Central
Pass all adjustment entries through Journal (F7). Use Recurring vouchers (Alt+R) for monthly accruals. Follow the Year-end adjustments checklist and Month-end closing checklist guides.
Sources
- CGST Act 2017 — sections 17(5)(h), 49, 49A, 49B, 50
Last verified: 30 Sep 2026.