4.3 Taxes Flashcards
Harmonized Sales Tax
Accounting for taxes is confusing because of government regulations
HST
The combined provincial and federal sales tax.
Percentage
is added to what you buy
In Ontario it is 13%, but it is different in each province
HST PAYABLE ACCOUNT
SALES & HST
- Added to invoices and remitted to the government
- Covers the sale of all goods and covers services too
Payable: collecting money for government
HST RECOVERABLE ACCOUNT
PURCHASES & HST
- All businesses are required to pay tax, BUT they can recover the HST they are charged by suppliers
Recoverable: government owes you money
Accounting for HST
The Seller has the responsibility of:
- Calculate the tax and add it on the sale of goods
- Collect tax from the customer
- Accumulate tax in a special liability account called HST Payable
- Remit the sales tax to the government periodically.
HST RECOVERABLE IS
Debited
Opposite of a normal balance
HST PAYABLE IS
Credited
You are not keeping it so it is in a separate liability account
HST accounts are what accounts
Liability accounts
CONTRA liability
Opposite of a normal balance so it is a liability accounts with a debit balance
What is the point of these two new liability accounts
you have an amount of money in both accounts and instead of doing two transactions with the government you compare the two accounts to see if you owe money to the government or if they owe you money
Remitting the HST:
- Businesses file monthly or quarterly to remit taxes
- If HST Recoverable is bigger than HST Payable, then a REBATE is given
- If HST Recoverable is smaller than HST Payable, then the company must pay the balance
Remitting the HST (the goal is to…)
- DR the HST Payable account for the credit balance
- CR the HST Recoverable account for the debit balance
which will zero out the HST Payable and Recoverable accounts
How does it impact our balance sheet
HST Recoverable is recorded on the Balance Sheet as a contra liability.
contra: subtracted instead of added
