PERSONAL NET WORTH Calculation of Personal Financial … · Debit and Credit Theory: Assets ASSETS...

Copyright © 2008 Pearson Education Canada 7

CHAPTER 1 • UNIT 1 Line Master 1

Cal

cula

tion

of

Per

sona

l Fin

anci

al P

osit

ion

TO

TA

L V

AL

UE

OF

IT

EM

SO

WN

ED

TO

TA

LO

WE

D T

OC

RE

DIT

OR

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PE

RSO

NA

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ET

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RT

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=

From https://testbankgo.eu/p/Solution-Manual-for-Accounting-for-Canadian-Colleges-Fifth-Edition-5th-Edition-by-Palmer

The Accounting Equation

Assets = Equities

(things owned) (claims against the assets)

For example:

$39 000 = $39 000

Assets = Liabilities + Owner’s Equity

(things owned) (claims against the assets)

$39 000 = $5 300 + ?

What is the owner’s claim against the assets?

8


Copyright © 2008 Pearson Education CanadaFrom https://testbankgo.eu/p/Solution-Manual-for-Accounting-for-Canadian-Colleges-Fifth-Edition-5th-Edition-by-Palmer

https://testbankgo.eu/p/Solution-Manual-for-Accounting-for-Canadian-Colleges-Fifth-Edition-5th-Edition-by-Palmer

The Balance Sheet Title:

Who? What? When?

Who?

What?

When?

Assets Liabilities+

Owner’sEquity

A = L + OE

9




The Accounting Equation:

Applications

(a) $ 15 000 = $7 000 + ?

(b) 35 000 = 9 000 + ?

(c) 50 000 = ? + 17 000

(d) 28 000 = ? + 21 000

(e) 150 000 = 89 000 + ?

Remember! A = L + OE

10




Acc

ount

ing

Info

rmat

ion

Is U

sed

to M

ake

Dec

isio

ns

OW

NE

RS

CR

ED

ITO

RS

PER

SON

AL

USE

AC

CO

UN

TIN

G I

NFO

RM

AT

ION

INV

EST

OR

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MA

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ME

NT

GO

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RN

ME

NT

11




Transactions: A Definition

A transaction is an exchange of values.

Receive something Give somethingof value. of value.

A Transaction

For example:

equipment $25 000 cashworth $25 000

12




Generally Accepted Accounting Principles:GAAP—What Are They?

STANDARD RULES

AND GUIDELINES

FOR

ACCOUNTING

13




T-Account:Debit Side and Credit Side

TITLE

LEFT SIDE RIGHT SIDE

DEBIT CREDIT

14




The Balance Sheet and T-Accounts

Balance Sheet

Left Side Right SideAssets Liabilities

+Owner’s Equity

Assets originate on the left side Liabilities and Owner’s Equityof the balance sheet. originate on the right side of

the balance sheet.

Asset account balances are Liability and Owner’s Equityrecorded on the debit side. account balances are recorded

on the credit side.

Asset Accounts Liability and Owner’s Equity Accounts

Debit Credit Debit Credit

DEBIT CREDITBALANCE BALANCE

15




Debit and Credit Theory: Assets

ASSETS = LIABILITIES + OWNER’S EQUITY

Debit CreditINCREASE DECREASE

• Assets originate on the LEFT SIDE of the balance sheet.

• Asset balances are recorded on the DEBIT SIDE.

• Assets INCREASE on the DEBIT SIDE.

• Assets DECREASE on the CREDIT SIDE.

16




Debit and Credit Theory: Liabilities

ASSETS = LIABILITIES + OWNER’SEQUITY

Debit Credit Debit CreditDECREASE INCREASE

• Liabilities originate on the RIGHT SIDE of the balance sheet.

• Liability balances are recorded on the CREDIT SIDE.

• Liabilities INCREASE on the CREDIT SIDE.

• Liabilities DECREASE on the DEBIT SIDE.

17




Debit and Credit Theory: Owner’s Equity

ASSETS = LIABILITIES + OWNER’S EQUITY

Debit Credit Debit Credit Debit CreditDECREASE INCREASE

• Owner’s Equity originates on the RIGHT SIDE of the balancesheet.

• Owner’s Equity balance is recorded on the CREDIT SIDE.

• Owner’s Equity INCREASES on the CREDIT SIDE.

• Owner’s Equity DECREASES on the DEBIT SIDE.

18




Calculation of T-Account Balance

CashAug.1 6 000 Aug.2 2 400

4 1 800 8 1 6007 900 4 000

8 700

Calculate Calculatedebit total. credit total.

Balance 4 700

Calculate the differencebetween the debit and thecredit total and enter this balance on the larger side of the account.

19




The Income Statement Format

Who?What?When?

Revenue

Minus

Expenses

Equals

Net Income or (Net Loss)

20


Copyright © 2008 Pearson Education Canada



The Income Statement:Determining Net Income (Net Loss)

Revenue – Expenses = Net Income (Net Loss)

(a) $200 000 – $130 000 = –––––––––––––––––––(b) 28 200 – 22 200 = –––––––––––––––––––(c) 69 000 – 73 000 = –––––––––––––––––––(d) 18 500 – 13 700 = –––––––––––––––––––(e) 42 000 – 49 000 = –––––––––––––––––––

• When REVENUE is greater than expenses there is a NET INCOME.

• When EXPENSES are greater than revenue there is a NET LOSS.

21





The Owner’s Drawings Accounts: What Is It?

A. Trieu, Capital 300

DR. CR.

Decrease Increase

(c) Withdrawals (a) Owner’s Investment(d) Losses (b) Profits

A. Trieu, Drawings 301

DR. CR.

(e) Withdrawals(f) Salary(g) Personal payments

• The owner’s Drawings account is a record of all withdrawals ofassets by the owner.

22





Calculating the New Capital: Net Income and Drawings,Drawings Smaller than Net Income

Owner’s EquityA. Trieu, Capital July 1 $33 000

Add: Net Income for July $9 000

Less: A. Trieu, Drawings 1 500

Increase in Capital 7 500

A. Trieu, Capital July 31 $ ?

Owner’s EquityA. Trieu, Capital August 1 $40 500

Add: Net Income for August $11 500


Increase in Capital ?00

A. Trieu, Capital August 31 $ ?

• Net Income INCREASES Capital.

• Drawings DECREASE Capital.

23





Calculating the New Capital: Net Loss and Drawings,Drawings Larger than Net Income

Owner’s EquityA. Trieu, Capital September 1 $49 900

Add: Net Income for September $9 800


Increase in Capital ?00

A. Trieu, Capital September 30 $ ?

Owner’s EquityA. Trieu, Capital October 1 $57 900

Less: Net Loss for October $ 950


Decrease in Capital ?00

A. Trieu, Capital October 31 $ ?

• Net Loss DECREASES Capital.

24





The General Ledger

GENERAL LEDGER

Cash Accounts Receivable Supplies

Land Building Equipment

Accounts Payable Bank Loan Mortgage Payable

Owner, Capital Owner, Drawings

Sales Revenue Fees Earned

Rent Expense Salaries Expense Advertising Expense

Delivery Expense Hydro Expense Miscellaneous Expense

25


Assets

Liabilities

Owner’sEquity

Revenue

Expenses

BalanceSheet

Income

Statement




Revenue and Expense AccountsDetermine Net Income or Loss

Revenue and Expense Accountsare used to determineNet Income or Loss

Net Income or Loss

affectsthe

Owner’s Capital Account

DR. CR.Decrease IncreaseLoss Net Income

26





Inco

me

Stat

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t Acc

ount

s

Deb

its a

nd c

redi

ts f

or in

com

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atem

ent a

ccou

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are

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edby

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Ow

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Exp

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Exp

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Deb

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ebit

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even

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sein

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debi

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edit

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.

27





Summary of Debit and Credit Theory

Balance Sheet Accounts

A = L + OE

Asset Accounts Liability Accounts Owner’s Equity Account

Debit Credit Debit Credit Debit CreditIncrease Decrease Decrease Increase Decrease Increase+ – – + – +

Income Statement Accounts

Owner’s Equity Account

Debit CreditDecrease Increase– +

Expense Accounts Revenue Accounts

Debit Credit Debit CreditIncrease Decrease Decrease Increase+ – – +

28





Transaction Analysis:Asking the Right Questions

1. What accounts were affected?

2. Were the accounts A, L, OE, R, or E accounts?

3. Did the accounts increase or decrease?

4. Were the accounts debited or credited?

29





The Journal:Where TransactionsAre First Recorded

T R A N S A C T I O N S

JOURNAL

• Transactions are first recorded chronologically in the journal.

• The journal contains a complete record of each transaction: date,debit, credit, amount, and explanation.

• Journals may be completed manually in a book or, using a com-puter, in a computer file.

30




• The LEDGER is a group of accounts.

• Each ACCOUNT shows a complete, up-to-date record of alltransactions affecting ONLY that particular account.

• The ledger may be a manually prepared paper record or a set offiles in a computer system.

• POSTING is the process of transferring information to the ledgerFROM the journal.

31



Posting to the Ledger

T R A N S A C T I O N S

JOURNAL

LEDGER



Balance-column Form of Ledger Account

Cash

Mar. 1 2 200 Mar. 4 1503 75 7 2756 400 425

2 675

Balance 2 250

Cash 100

20__

Mar. 1 J1 2 0 0 0 00 DR. 2 0 0 0 003 J1 7 5 00 DR. 2 0 7 5 004 J1 1 5 0 00 DR. 1 9 2 5 006 J2 4 0 0 00 DR. 2 0 2 5 007 J3 1 2 7 5 00 DR. 2 2 5 0 00

• The balance-column form of account provides a balance after eachtransaction.

• The DR./CR. column indicates whether the balance is a debit or acredit balance.

• There is less chance of error in the balance-column form ofaccount than in a T-account.

32



ACCOUNT NO.

POST. DR.DATE PARTICULARS REF. DEBIT CREDIT CR. BALANCE



Determining Account Balances

Cash

May 1 2 500 May 3 1 4004 300 9 7306 1 630

33



ACCOUNT NO.


Cash 100

20__

May 1 2 5 0 0 003 1 4 0 0 004 3 0 0 006 1 6 3 0 007 7 3 0 00

ACCOUNT NO.


Bank Loan 230

20__

May 1 4 0 0 0 00 CR. 4 0 0 0 0031 7 0 0 00

June 30 7 0 0 00

ACCOUNT NO.


A. Singh, Capital 300

20__

May 1 2 5 0 0 0 0031 2 0 0 0 00

June 30 2 4 0 0 00



Posting to the Ledger

20__

June 1 Cash 5 2 4 00Sales Revenue 5 2 4 00

Sold to R. Moffat for cash.3 Office Supplies 7 5 00

Cash 7 5 00Bought miscellaneous supplies for cash.

34



General Journal PAGE

POSTDATE PARTICULARS REF. DEBIT CREDIT

General LedgerACCOUNT NO.


3

Cash 100



Debit Credit2 0001 500

630720 1 835

3 0154 850 4 750

Debit Credit27013565

19585

21525

470 520

Debit Credit27013565

19585

215470 495

Debit Credit2 3701 630

720410

2 5401 1701 690

5 130 5 400

35



1. Difference: $100Addition or subtraction error

2. Difference: $50Divided by 2 = $25Locate this figure ($25) — wrong sideof trial

3. Difference: $25Is there a $25 account missing?

4. Difference: $270Is the difference evenly divisible by 9?If so, look for a transposition error.

How to Locate Trial Balance Errors—We All Make Mistakes!



Introducing the Accounting Cycle

36



Business Transactions

ACCOUNTING CYCLE

NewAccountingPeriod Begins

FinancialStatementsPrepared

Journalizing

Ledger TrialBalance

FinancialStatements

SourceDocuments

Journal

Proof

Posting



Source Documentsand the Principle of Objectivity

SOURCEDOCUMENTS

— cash sales slip

— sales invoice

— purchase invoice

— cheque copy

— list of chequesreceived

VALUE

PRINCIPLE OFOBJECTIVITY

37Copyright © 2008 Pearson Education Canada


RECORD OFA

TRANSACTION

EVIDENCE

INFORMATION



Pre

pari

ng F

inan

cial

Sta

tem

ents

38 Copyright © 2008 Pearson Education Canada


Tri

al B

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39



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The Work Sheet Addedto the Accounting Cycle




ACCOUNTING CYCLE


Journalizing

Ledger TrialBalance

FinancialStatementsSource

Documents

Journal

Proof

Posting

WorkSheet



Steps in theManual Accounting System

SOURCE DOCUMENTS

JOURNAL

LEDGER

TRIAL BALANCE

FINANCIAL STATEMENTS

41




Adjusting Entries

What are they?• a series of journal entries

When are they recorded?• at the end of the accounting period

Why are they prepared?• to ensure that the account balances and the financial

statements are correct for the period

How do they differ from other journal entries?• cash is never affected with an adjusting entry• an income statement account and a balance sheet account are

affected by each adjustment

Types of Adjusting Entries:• Prepaid Expenses

Supplies Expense xxxSupplies xxx

To record supplies used during the period.

• Amortization

Amortization Expense xxxAccumulated Amortization xxx

To record amortization for the period.


42 Copyright © 2008 Pearson Education CanadaFrom https://testbankgo.eu/p/Solution-Manual-for-Accounting-for-Canadian-Colleges-Fifth-Edition-5th-Edition-by-Palmer



Closing the Books


Expenses

A creditbalance in theIncome Summaryaccountindicatesnet incomehas been earned.

Expenses Balance

Balance

XX XX XXXX XXXX

XXXX

Revenue

Income Summary

XX

XX XX

Balance

XX

Owner, Capital

X

X

Balance X

Owner, Drawings

X




Adjusting and Closing Entries Addedto the Accounting Cycle



ACCOUNTING CYCLE


Work SheetIncludingTrial BalancePrepared


Adjusting andClosing EntriesJournalized

Adjusting andClosing EntriesPosted

Journalizing

Proof

Ledger

Ledger

SourceDocuments

Journal

Journal

Posting

Post-ClosingTrial Balance

FinancialStatements

WorkSheet



The Basic Schedule of Cost of Goods Sold

Warrendon SportsSchedule of Cost of Goods Sold

For the month ended May 31, 20—

Merchandise Inventory, May 1 $16 000Add: Purchases 36 000Total Cost of Merchandise 52 000Less: Merchandise Inventory, May 31 18 000Cost of Goods Sold $34 000

• The schedule of cost of goods sold is prepared before theincome statement.





Income Statement for a Merchandising Company

Warrendon SportsIncome Statement

For the month ending May 31, 20—

RevenueSales $56 000

Cost of Goods SoldCost of Goods Sold (per schedule) 34 000Gross Profit 22 000

Operating ExpensesAdvertising Expense $2 400Delivery Expense 700Office Expense 400Miscellaneous Expense 500Rent Expense 2 600Salaries Expense 5 400Utilities Expense 600Total Expenses 12 600Net Income $9 400

• There are THREE sections.• The Cost of Goods Sold ($34 000) is obtained from the Schedule

of Cost of Goods Sold.






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Creating an Accounts Payable Ledger

GENERAL LEDGER

ACCOUNTS PAYABLE LEDGER

Accounts Payable

B. Brandt

Bank LoanMortgagePayable

J. Hagadorn,Capital

J. Hagadorn,Drawings

400

200

5 000 50 000 34 998 500

B. Galea

50

B. Lailey

B. Brandt B. Galea B. Lailey

150

200 50 150





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Info

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Control Account Balances Must Equalthe Total of the Subsidiary Ledgers


Fraser EnterprisesGeneral Ledger Trial Balance

February 28, 20—Cash $ 2 000Accounts Receivable 3 500Supplies 500Building 60 000Equipment 3 000Accounts Payable $ 2 000Bank Loan 20 000D. Fraser, Capital 47 000

$69 000 $69 000

Fraser EnterprisesSchedule of Accounts Receivable

February 28, 20—C. Bard $ 1 000D. Meyer 700T. Roesler 800W. Turko 1 000

$ 3 500

Fraser EnterprisesSchedule of Accounts Payable

February 28, 20—Acme Ltd. $ 200Evans Co. 900Falco Ltd. 400Mentor Ltd. 500

$ 2 000





The

Spe

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The Purchasing System:Ordering Goods

Purchase Requisition

Purchase Order

Supplier Goods Shipped

Purchase Invoice




The Purchasing System:Matching Process

Goods Received

Receiving ReportPurchase Order

andMatching Process Purchase Invoice

andReceiving Report

Approved Invoice

Payment





The Purchasing System:Paying Approved Invoices

Goods Received Purchase Invoicefrom Supplier Received from

Supplier

Receiving Report

Matching Process

Receiving Purchase PurchaseReport Order Invoice

Must Agree

Approve Invoice Journalized and Posted

Filed until Payment Due Date File

Cheque Issued Journalized and Posted







The Sales System

SALESINVOICE

PREPARED

SALESJOURNAL

TOCUSTOMER

ACCOUNTSRECEIVABLE

LEDGER

GENERALLEDGER

SCHEDULEOF ACCOUNTSRECEIVABLE

TRIALBALANCE

STATEMENTSTO

CUSTOMERS

TO SALESDEPARTMENT

(SHIPPING)

4 COPIES

COPY 1 COPY 2 COPY 3 COPY 4





Dir

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Pos

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All

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All

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Ent

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Pre

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• • •

Post

to





Cash received

Control of Cash Receipts

Cash depositedin bank by

the office manager

Copy 1 Copy 2

Accountsreceivable clerk

Posts to AccountsReceivable

Ledger as credits

Records inCash Receipts

Journal

Sends monthlystatements to

customers

Posts toGeneral Ledger

monthly

Accountant

List of cash received preparedby the mail clerk

Prepares scheduleof accountsreceivable

Preparestrial

balance



Bank Reconciliation Procedures

BANK RECORDS:

• BALANCE in bank

• ADD —unrecorded deposits

• SUBTRACT —outstanding cheques

must equal

COMPANY RECORDS:

• BALANCE in ledgers

• ADD —credit memos

—interest earned

—money collected

• SUBTRACT —debit memos

—NSF cheques

—interest expense

—other bank charges






Bal

ance

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Pre

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tory

Adj

ustm

ent

on t

he W

ork

Shee

tCHAPTER 12 • UNIT 28 Line Master 58

AC

CT.

TR

IAL

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The Complete Accounting Cycle



ACCOUNTING CYCLE

New AccountingPeriod Begins

Work SheetIncludingTrial BalancePrepared


Adjusting andClosing EntriesJournalized

Adjusting andClosing EntriesPosted

ReversingEntriesPosted

ReversingEntriesJournalized

Journalizing

Proof

Ledger

Ledger

Journal

Journal

Posting

Ledger

Journal Post-closingTrial Balance

FinancialStatements

WorkSheet





The

Pay

roll

Acc

ount

ing

Syst

em

Gro

ssE

arni

ngs

Payr

oll

Jour

nal

Em

ploy

ee's

Ear

ning

sR

ecor

d

Pay

Che

ques

T4

Sli

p

Gen

eral

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ger

Acc

ount

s

Gen

eral

Jour

nal

Ent

ries




Accounting for Partnerships

• Characteristics of Sole Proprietorships, Partnerships, andCorporations are . . .

• Advantages of each form of business are . . .

• Disadvantages of each form of business are . . .

• Journal entries to establish a partnership are . . .

• Methods to allocate Net Income or Net Loss between the partnersare . . .

• Statement of Partners’ Equity looks like . . .





Division of Partnership Net Income

Johnson and Casey Design StudioStatement of Distribution of Net Income

October 31, 20—

Net Income to be divided $150 000

Johnson Casey Total

Salaries $55 000 $55 000 $110 000

Interest on beginningcapital 10% 9 000 8 000 17 000

Remaining net incomeshared equally 11 500 11 500 23 000

Total $75 500 $74 500 $150 000

NOTE: Beginning capital for Johnson was $90 000 and for Casey, $80 000.




Accounting for Corporations

• Journal entries for the issuance of shares for cash and for otherassets are . . .

• Types of shares:Common, with stated value, par value or no parPreferred, with stated value, par value or no par

• Features associated with preferred shares are:

Cumulative

Convertible

Callable

Participating

• Shareholders’ Equity consists of:

Share Capital

Retained Earnings

• Journal entries for the Declaration and Payment of cash dividendsare . . .

• Shareholders’ Equity on the Balance Sheet and the Statment ofRetained Earnings look like . ..

69





Balance Sheet—Account Form • Line Master 64




Transaction Sheet • Line Master 65

TRANSACTION SHEET

Assets = Liabilities + Equity

_________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________

Balances $ $ $ $ $ $ $_________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________

_________ _________ _________ _________ _________ _________ _________ _________

New Balance _________ _________ _________ _________ _________ _________ _________




Trial Balance Form • Line Master 66

ACC.ACCOUNT NO. DEBIT CREDIT




Balance Sheet—Report Form and Financial Statements, 2 Column • Line Master 67




Balance Sheet—Report Form and Financial Statements, 3 Column • Line Master 68




T-Account Forms • Line Master 69




General Journal • Line Master 70






Accounts Payable and Receivable Ledger, Long Forms • Line Master 71

ACCOUNT NO.


ACCOUNT NO.


ACCOUNT NO.





Accounts Payable and Receivable Ledger, Short Forms • Line Master 72

ACCOUNT NO.


ACCOUNT NO.


ACCOUNT NO.


ACCOUNT NO.


ACCOUNT NO.





Work Sheet, 6 Column • Line Master 73

AC

CT.

TR

IAL

BA

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CE

INC

OM

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NC

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ET

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ITLE

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Columnar Journal, page 1 • Line Master 76

COLUMNAR JOURNAL

ACCOUNT OR REF. CASH OTHER ACCOUNTS

DATE EXPLANATION NO. DEBIT CREDIT P.R. DEBIT CREDIT




Columnar Journal, page 2 • Line Master 77

PAGE

GST GST PSTACCOUNTS RECEIVABLE SALES REFUNDABLE PAYABLE PAYABLE PURCHASES ACCOUNTS PAYABLE

DEBIT CREDIT CREDIT DEBIT CREDIT CREDIT DEBIT DEBIT CREDIT




Purchase Journal • Line Master 78PU

RC

HA

SES

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GST

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Sales Journal • Line Master 79

SAL

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Cash Receipts Journal • Line Master 80C

ASH

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Cash Payments Journal • Line Master 81

CA

SH P

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ME

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UR

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STPU

RC

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Payroll Journal • Line Master 82C

OM

PAN

Y N

AM

E__

____

____

____

____

____

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____

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____

___

PAY

RO

LL

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UR

NA

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PAY

PE

RIO

D E

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ING

____

____

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NE

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OF

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EC

OD

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AR

NIN

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CPP

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INS.

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NS

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f 1

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ss E

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otal

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uctio

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Net

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ning

s$

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f 2

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arni

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s:$

Net

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ning

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*The

term

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iste

red

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ion

Pla

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.P.P

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entif

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dedu

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ns p

ayab

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a p

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prov

ided

by

the

empl

oyer

.




The Computer Accounting Cycle • Line Master 83


ACCOUNTING CYCLE

New AccountingPeriod Begins

Data Entry(Debits andCredits)

• Adjusting Entries• Financial Statements• Closing Entries• Post-Closing Trial Balance

• Invoices• Statements• Journals• Ledgers• Trial Balances• Financial Statements

DAILY

DAILY

END OFFISCAL PERIOD

The Computer Accounting Cycle




Unit Teaching Plan • Line Master 84

UNIT DESIGNATION

1. OBJECTIVES•••••

2. INTRODUCTION

3. SEQUENCE AND LESSON PLANNINGTopic Activities No. of Periods

(a)

(b)

(c)

(d)

(e)

4. TIMELINE

5. RESOURCE PLANNING

6. EVALUATION OF STUDENT ACHIEVEMENT



Harmonized Sales Tax (HST)GST is a 7% tax that applies to taxable goods and services sold in Canada.

In three provinces (Nova Scotia, New Brunswick and Newfoundland) the GST iscombined with provincial sales tax and is applied at a HST rate of 15%. HST is chargedon taxable goods and services in these provinces. The combined HST rate is made up of8% provincial sales tax and 7% GST. The 7% GST is collected in all provinces either asa separate tax or a combined tax. HST follows the same basic operating rules as GST andthe accounting entries for collection and remittance are similar. In fact, when you com-plete your remittance form you do not have to separate the tax collected within the 15%rate. Complete information for Goods and Services Tax/Harmonized Sales Tax is availableon the Revenue Canada Small Business Information Seminar web sitewww.ccra.adrc.gc.ca.

Recording HSTHST applies to goods and services sold and purchased. The business collects HST fromcustomers on the sale, deducts HST paid to suppliers and remits the difference to the fed-eral government. The accounting entries are reduced in provinces using the HST systemsince the business is recording a single tax rather than accounting for PST and GST sep-arately.

HST PayableThe amount of Harmonized Sales Tax collected is a liability. It is owed to the federal gov-ernment. The amount of HST collected during the month is credited to the HST Payableaccount. Is this the amount of tax that is sent to the federal government? No. The businessremits HST collected minus HST paid. How does a business record HST paid (input taxcredit) on goods and services purchased for the business?

HST PayableJan. 3 201.15

4 91.076 132.329 116.27

10 87.71

31 106.543 055.93

HST Input Tax CreditWhen a business purchases goods or services it is charged the cost price of the item plusHST. When Warrenton Sports purchases a set of skis for resale it is charged the cost price$500 plus $75 HST. What is the amount recorded in the Purchase account? The $500 costprice. Why is the $75 HST paid to suppliers before remitting the tax to the federal gov-ernment. Therefore, Warrenton receives an input tax credit for the $75 paid.

HST Refundable 75Purchases 500

Cash 575Cash purchase of skis


Harmonized Sales Tax (HST)



The amount of HST paid to suppliers is debited to the HST Refundable account.

HST RefundableJan. 1 75.00

4 60.008 90.009 30.00

11 135.00

31 105.002 401.35

The HST Refundable account is a contra liability account since it reduces the amount ofa liability. The HST Payable account balance (3 055.93) is reduced by the balance in theHST Refundable account (2 401.35) in order to determine the amount owed to the federalgovernment (654. 58). This amount is remitted to the federal government.

The HST Payable account balance is forwarded to the Receiver General of the federalgovernment monthly, quarterly or annually depending on the size of the business.

Jan. 31 HST Payable 3 055.93HST Refundable 2 401.35Cash 654.58

January HST remitted

In the even the HST paid to suppliers exceeds the HST collected from customers, the busi-ness is able to apply for a refund from the federal government.


Harmonized Sales Tax (HST)

HST PayableJan. 3 201.15

4 91.076 132.329 116.27

10 87.71

31 106.543 055.93

HST RefundableJan. 1 75.00

4 60.008 90.009 30.00

11 135.00

31 105.002 401.35




1. Following are the HST Payable and HST Refundable accounts:

HST Payable HST RefundableAug. 5 157.15 Aug. 4 94

12 194.63 11 12519 187.81 20 10129 201.16 30 130

(a) How much should be remitted to the federal government for the month of August?

(b) In General Journal form, prepare the entry to remit the August tax to the federalgovernment.

2. Record the following source document on page 273 of a General Journal:

Aug. 1 Cash register tape shows sales of $1 120 plus $168 HST.

2 Cheque received from E. Brown for $487 to pay Invoice 675.

2 Cheque received from J. Singh for $267.54 to pay Invoice 687, $273 less$5.46 discount.

4 Cheque received from B. Finch, the owner, for $4 200 as an additionalinvestment in the business.

7 Bank credit memo, $13 800 for a bank loan that was deposited in thecompany bank account.

8 Cheque received from B.L. Schultz for $617.40 to pay Invoice 693, $630less $12.60 discount.

9 Cash Sales Slips 710 to 725 for $2 670 plus $400.50 HST.

3. Record the following source documents on page 214 of a General Journal:

Sep. 10 Cheque received for $5 600 from the owner, J. Gatz, as a further invest-ment in the business.

12 Cash Sales Slips 435 to 450 for $1 325 plus 15-percent HST.

13 Cheques received:From C. Bowman, $457 on account;From P. Lade, $600.74 to pay Invoice 1785 for $613 less $12.26 discount.

15 Cheque received from C. Bowman for $793.80 to pay Invoice 1794 for$810 less $16.20 discount.

15 Cash Sales Slips 451 to 473 for $4 630 plus 15-percent HST.

HST Problems




HST Solutions

1 (a)

HST Payable $740.75 HST Refundable $450.000 Remittance $290.75



1 (b)

2002

Sep. 15 HST Payable 7 4 0 75

HST Refundable 4 5 0 00

Cash 2 9 0 75

Remitted Aug. HST to the federal government.




HST Solutions

2.

273

2000

Mar. 1 Cash 1 2 8 8 00

Sales 1 1 2 0 00

HST Payable 1 6 8 00

Cash register tape.

2 Cash 4 8 7 00

Accounts Receivable/E. Brown 4 8 7 00

Received from Invoice 675

2 Cash 2 6 7 54

Sales Discount 5 46

Accounts Receivable/J. Singh 2 7 3 00

Received for Invoice 687.

4 Cash 4 2 0 0 00

B. Finch, Capital 4 2 0 0 00

Additional investment.

7 Cash 1 3 8 0 0 00

Bank Loan 1 3 8 0 0 00

Credit memo for loan.

8 Cash 6 1 7 40

Sales Discounts 1 2 60

Accounts Receivable/B.L. Schultz 6 3 0 00


9 Cash 3 0 7 0 50

Sales 2 6 7 0 00


Cash sales slips 710 to 725.






3.

214

2001

Sep. 10 Cash 5 6 0 0 00

J. Gatz, Capital 5 6 0 0 00

Additional investment.

12 Cash 1 5 2 3 75

Sales 1 3 2 5 00



13 Cash 4 5 7 00

Accounts Receivable/C. Bowman 4 5 7 00

Received on account.

13 Cash 6 0 0 74

Sales Discount 1 2 26

Accounts Receivable/P. Lade 6 1 3 00


15 Cash 7 9 3 80

Sales Discounts 1 6 20

Accounts Receivable/C. Bowman 8 1 0 00


15 Cash 5 3 2 4 50

Sales 4 6 3 0 00





HST Solutions



PERSONAL NET WORTH Calculation of Personal Financial … · Debit and Credit Theory: Assets ASSETS...

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Transcript of PERSONAL NET WORTH Calculation of Personal Financial … · Debit and Credit Theory: Assets ASSETS...