Chapter 6.3 & 6.4Sales Taxes

Sales Taxes Tax dollars generated from business

transactions

Four basic taxation principles will help you understand the accounting required:

1. Tax dollars are charged to the buyer of goods

2. The tax dollars are collected by the seller and recorded in a separate liability account

3. The tax dollars rightfully belong to the government

4. The seller sends the tax dollars to the government at appoint times

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

PST + GST = HSTWhat is it?

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%

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

Sales Transactions: Bank (cash sales) or A/R Sales

Invoice› Revenue› HST Payable (13%) liability

account to accumulate tax.

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

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

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

Sales to Customer Tax Paid on Purchase

131313

13133

926

Remittance HST Payable – Recoverable

= 39 – 26 = 13

HST RECOVERABLE

HST PAYABLE

Journal EntryDR CR

HST Payable 39HST Recoverable 26Cash 13

To record HST Remittance

Sales to Customer Tax Paid on Purchase

1313

131313

26

39

Refund HST Recoverable > Payable = 39 – 26 = 13

HST RECOVERABLE

HST PAYABLE

Journal EntryDR CR

HST Payable 26Cash 13

HST Recoverable 39To record HST Refund