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Chapter 6.3 & 6.4

Chapter 6.3 & 6.4. Sales Taxes. Sales Taxes. Tax dollars generated from business transactions. Four basic taxation principles will help you understand the accounting required:. Tax dollars are charged to the buyer of goods

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Chapter 6.3 & 6.4

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  1. Chapter 6.3 & 6.4 Sales Taxes

  2. Sales Taxes • Tax dollars generated from business transactions

  3. Four basic taxation principles will help you understand the accounting required: • Tax dollars are charged to the buyer of goods • The tax dollars are collected by the seller and recorded in a separate liability account • The tax dollars rightfully belong to the government • The seller sends the tax dollars to the government at appoint times

  4. Retail Sales Tax (Provincial Sales Tax) • in Canada is commonly called Provincial Sales Tax (PST) because it is a tax charged by some provincial governments. The tax is calculated as a percentage of the price of a good and is paid by the consumer

  5. PST + GST = HST What is it?

  6. What is it? • Harmonized sales Tax- 13%, July 1, 2010 • Percentage tax based on price of goods/ services sold to consumer • Used by government to collect revenue to spend on services • 2008  PST: 8%, GST: 5%

  7. Accounting for HST: • The Seller or Vendor – is responsible for administering the HST and remitting it to the Federal Government, which includes: • Calculating the taxes (PST & GST) + adding it into the price of goods / services • Collecting tax from customers + remitting (to pay) to levels of government

  8. Sales Transactions: • Bank (cash sales) or A/R  Sales Invoice • Revenue • HST Payable (13%)  liability account to accumulate tax.

  9. The Purchaser: • Is responsible for accounting for HST on purchases related to the operations of the business and by submitting the Input Tax Credit for the appropriate refund

  10. Purchase Transaction “Contra liability” account used to recover taxes paid on purchases for operating business complete “input tax credit” for refund of HST (DR) • Assets/ Expense • HST Recoverable • Bank or A/P Cheque Copy Purchase Invoice

  11. Remitting Harmonized Sales Tax: • Small business pays (remits) annually • Mid-size business remits quarterly (3 months) • Large business remits by the 15th the following month

  12. Tax Paid on Purchase Sales to Customer HST PAYABLE HST RECOVERABLE 13 13 13 13 13 26 39 Remittance HST Payable – Recoverable = 39 – 26 = 13

  13. Journal Entry DR CR HST Payable 39 HST Recoverable 26 Cash 13 To record HST Remittance

  14. Tax Paid on Purchase Sales to Customer HST PAYABLE HST RECOVERABLE 13 13 13 13 13 26 39 Refund HST Recoverable > Payable = 39 – 26 = 13

  15. Journal Entry DR CR HST Payable 26 Cash 13 HST Recoverable 39 To record HST Refund

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