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Chapter 6.3

Chapter 6.3 . Provincial Sales Tax. The seller is responsible for Calculating the tax and adding it to normal price for goods Collecting the tax from customers Accumulating this sales tax (PST Payable) Remitting the sales tax monthly. Sales Tax. GST: Goods and Services Tax 7%

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Chapter 6.3

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  1. Chapter 6.3 Provincial Sales Tax

  2. The seller is responsible for • Calculating the tax and adding it to normal price for goods • Collecting the tax from customers • Accumulating this sales tax (PST Payable) • Remitting the sales tax monthly

  3. Sales Tax • GST: Goods and Services Tax 7% • PST: Provincial Sales Tax 8% • Typical Sale: • Cash or A/R 115 Sales 100 GST Payable 7 PST Payable 8

  4. Sales Taxes • GST on Purchases: dr Purchases (or Inventory, etc.) 200 dr GST Refundable 16 cr Cash or A/P 216 • “Remit” GST if owing: • Refund of GST is owed: dr GST Payable 500 cr GST Refundable 450 cr Cash 50 dr GST Payable 450 dr Cash 50 cr GST Refundable 500

  5. Credit Cards • Increases sales • Typical Sale: dr Cash 672dr Visa Discount Expense 18 cr Sales 600 cr PST Payable 48 cr GST Payable 42$600 x 3% visa charge

  6. Debit Cards • Charged by banks and as good as cash to retailer dr Cash 114.75dr Debit Card Expense 0.25 cr Sales 100 cr PST Payable 8 cr GST Payable 7

  7. Harmonized Sales Tax Accounting Procedures

  8. HST Responsibilities • Businesses are responsible for collecting and remitting the HST to the federal government • Registrants pay the HST on most purchases they make to operate their business. • Registrants can claim an input tax credit to recover the HST paid or payable on the purchases they use in their commercial activities.

  9. An Accounting Example • Midus Car Repair Inc. purchases a hoist on account from Hoists N More at a price of $1,000. HST is charged at the rate of 13%. • Accounting for Midus: DR Equipment 1,000 DR HST recoverable 130 CR Accounts Payable 1,130

  10. An Accounting Example • Accounting for Hoists N More: DR Accounts Receivable 1,130 CR HST Payable 130 CR Revenue 1,000 Note: As registrants can claim an input tax credit on HST paid, the HST is recorded separately from the cost of the purchase.

  11. Remitting HST • Assume Hoists N More has the following balances in their accounts: HST Recoverable - $200 HST Payable - $130 Only the net difference must be remitted to the federal government. In the above case, Hoists N More will receive a refund of $70.

  12. Remitting the HST • Accounting entry: DR HST Payable 130 DR Cash 70 CR HST Recoverable 200 Note: As with GST, reporting periods can be either monthly, quarterly or annually. The quick method still applies for small business.

  13. Balance Sheet Presentation • Classification of accounts: HST recoverable – current asset HST payable – current liability As the amounts offset each other, the net amount can be reported as either a current asset or current liability depending on the balance.

  14. Balance Sheet Presentation • Using the balances from Hoists N More Current Assets Bank XXX Accounts Receivable XXX HST Recoverable 200 HST Payable 130 Net HST Recoverable 70

  15. Taxable vs. Non Taxable • This topic is beyond the scope required for high school students. All information related to what products / services are required to be taxed can be found on the CRA website.

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