Issues from switching to Item Inclusive of GST to Item Exclusive

 

When entering prices into our system, users may encounter small discrepancies due to the way GST (Goods and Services Tax) is handled, particularly with rounding. This article explains why these discrepancies occur and provides guidance on how to manage them.

What is the Rounding Issue?

The rounding issue arises because our system stores prices excluding GST (Ex-GST). New users often need to convert their GST-inclusive prices to Ex-GST prices before entering them into the system. This conversion can result in prices with more than two decimal places, necessitating rounding and leading to minor differences in total amounts, especially when dealing with large quantities.

 

Example

Let's use the example of chairs priced at $6.50 each, including GST:

1. GST-Inclusive Price: $6.50

2. GST Rate: 10%

3. Conversion to Ex-GST Price:

   
   
   

4. Rounding:

   • Users need to round $5.9090909090909100 to $5.91 (two decimal places) before entering it into our system.

5. Impact of Rounding:

   • When you multiply $5.91 by 140 chairs, you get: 
     
     
     
     
   • If you used the exact amount ($5.9090909090909100), you would get: 
     
     
     
     

6. Difference:

   $827.40−$827.27=$0.13
   
   
   

Why Does This Happen?

The discrepancy occurs because users must convert GST-inclusive prices to Ex-GST prices and round them to two decimal places before entering them into our system. This rounding can result in small differences when multiplied by large quantities.

Why Can Only Two Decimal Places Be Used?

In customer-facing documents such as quotes and invoices, prices are typically displayed with only two decimal places. This is because it is standard practice and more understandable for end customers. For instance, a price of $5.91 is clear and concise, whereas a price of $5.9090909090909100 is cumbersome and impractical for display purposes. Therefore, our system requires prices to be rounded to two decimal places to ensure clarity and professionalism in customer communications.

 

How to Manage the Rounding Issue

1. Manual Booking Adjustments:

   • Adjust booking totals manually where discrepancies occur to align with the expected totals.