6.3 Taxes

Chapter 6

Types of Taxes

Sales Taxes

Accounting for taxes can be complex because of the government regulations.

Harmonized Sales TaxHarmonized Sales Tax (HST) is a

percentage tax based on the price of goods or services sold to a consumer. The ________________ .Harmonized means that the provincial & federal rates have been combined.

All businesses with _______________________per year must register for HST. Each registrant is given a special Business Number that they use when submitting HST to the government.

History of the HSTHST came into effect in Ontario on July

1st, 2010. Prior to July 1 consumers were charged

8% PST & 5% GST separately. 8% PST was collected provincially 5% GST was collected federally

Now HST is 13% and includes the ____________________________________________________

What do we pay HST on?

Go to the following website to see what items are charged HST.

http://www.fin.gov.on.ca/en/tax/hst/

HST requirementsThe Seller (Business) is charged with the

responsibility of administering the tax. Their responsibilities include:1. Calculate the tax and ______________of

goods.2. ___________from the customers3. Accumulate the HST into a special account

called ____________in the Liability section.4. _____the accumulated sales tax _____

monthly, quarterly or annually depending on the company’s annual revenues.

Recording HST on a Cash Transaction

The accounting entry to record a cash sale will now look like this:

DR CRBank $225.00

Sales199.00HST Payable 26.00

The amount of tax can be read off the cash sales slip or POS summary.

Recording HST on a Sale on Account

The accounting entry to record a sale on account will now look like this:

DR CRA/R – Marathon Sports $363.58

Sales321.75HST Payable 41.83

The amount of tax can be read off the sales invoice.

HST ReceivablePaying HST– All businesses are entitled to

recover the HST that they are charged by their suppliers. This HST paid is recorded in a contra (debit balance) liability account.

DR CR

Office Supplies 648

HST Recoverable 84

Bank 732

Tax Transaction ExamplesTax Transaction Examples

Remitting HST to the Gov’t.

Businesses are required to file a _________ monthly, quarterly or annually within one month following the end of their reporting period. At this point the business will clear their HST accounts. DR CR

Apr 28 HST Payable 2309.65

HST Recoverable 1567.90

Bank 741.75

HST remittance for the quarter ended Mar 31

HST Remittance Example

• The goal is to ________ out the HST Payable & HST Recoverable accounts.

• To do this, we need to _____________________account for the credit balance in that account.

• We also need to ______________________ account for the debit balance in that account.

HST on the Balance Sheet

HST recoverable is recorded on the balance sheet as a ___________ account. It would look like this:

LiabilitiesAccounts Payable 5634.90HST Payable 2309.65Less HST Recoverable 1567.90 741.75Bank Loan 2500.00Total Liabilities 8876.65