A Quick Talk on Taxes

Sales Tax Sales tax is expressed as a percentage of the sales price on selected goods sold to customers by a retailer. They are collected on most revenues, and paid on many costs. Sales taxes may include the federal goods and services tax (GST) and the provincial sales tax (PST), if any. These two taxes have been combined into one harmonized sales tax (HST) in some Atlantic Provinces and come July, Ontario!

Sales GST Payable and PST Payable are current liability accounts that hold taxes collected from customers, that will eventually be remitted to the government. Eg. Tom cuts Callan’s lawn for $20.00 plus GST (5%) and PST (8%). Callan pays in cash. DR CR Jul 1 Cash 22.60 Sales 20.00 GST Payable 1.00 PST Payable 1.60

Purchases GST and PST are charged on most goods purchased, but GST can be recovered from the Government . The money that is owed from the government is stored in the GST Recoverable Account. PST is not recoverable and is added to cost of the asset purchased or expense paid. Eg. Andy purchases supplies for $250, plus GST (5%) and PST(8%). Andy pays in cash. Journalize Andy’s Transaction DR CR Jul 1 Supplies 270 GST Recoverable 12.50 Cash 282.50

Exceptions GST is not charged on basic necessities: Groceries, Prescription Drugs, Rent, and Insurance. PST is not charged on goods for resale Merchandise Inventory. Business that earn less than $30,000 in taxable net income cannot collect GST Business that do not charge GST, cannot collect GST.