Introduction to Accounting 120 Chapter 6: Sales Tax & Financial Trend Analysis Mr. Binet Moncton High School

What is Tax? A sales tax is one way that the Provincial and Federal Governments can raise funds. There is great debate and regulation of sales taxes, who and what they are applied to and complex formulas to divvy them up. All businesses who sell products or services are required to collect taxes on behalf of governments.

Sales Tax: The Purchaser The purchaser of goods or services simply has to pay the final bill amount from the seller. The taxes paid are shown on the receipt or invoice so the purchaser can see the breakdown. The current sales tax is percentage based and current is at 13% (which will be discussed later).

Sales Tax: The Seller The seller is charged with the responsibility of administering the sales tax. The seller is obliged to do the following: 1.Calculate the tax and add it on to the normal price of goods. 2.Collect the tax from the customer; 3.Accumulate the sales tax charged to the customers in a special liability account, called PST Payable (Provincial Sales Tax Payable); 4.Remit the accumulated sales tax to the provincial government periodically. In some cases, sales tax will be paid to the government before it is collected from the customer.

Sales Tax on a Cash Sale The simplest transaction involving sales tax is the “cash sale”. The seller determines the amount of the tax, adds it to the price, and collect the total from the customer. The cash sales slips used so far have not included sales tax. Now that sales tax has been explained, it will be included on the cash sales slips.

Remitting Sales Tax Sales tax is collected for a month and is then remitted to the government. Typically, the tax is remitted monthly. For example, taxes collected in January are to be remitted by the 15 th of February. The Sales Tax Payable represents a liability owed by the business to the government.

How GST/HST works The goods and services tax (GST) is a tax that applies to the supply of most goods and services in Canada. Three provinces (Nova Scotia, New Brunswick, and Newfoundland and Labrador, referred to as the participating provinces) harmonized their provincial sales tax with the GST to create the harmonized sales tax (HST). The HST applies to the same base of taxable goods and services as the GST.

How GST/HST works Effective January 1, 2008, the GST rate is reduced from 6% to 5%, and the HST rate from 14% to 13%. Almost everyone has to pay GST/HST on purchases of taxable supplies of goods and services (other than zero- rated supplies. Some sales or supplies are exempt from GST/HST.

How GST/HST works Although the consumer pays the tax, businesses are generally responsible for collecting and remitting it to the government. Businesses that are required to have a GST/HST registration number are called registrants. Registrants collect the GST/HST on most of their sales and pay the GST/HST on most purchases they make to operate their business. They can claim a credit, called an input tax credit (ITC), to recover the GST/HST they paid or owe on the purchases they use in their commercial activities.

How GST/HST works GST/HST registrants must meet certain responsibilities. Generally, they must file returns on a regular basis, collect the tax on taxable supplies they make in Canada, and remit any resulting net tax owing.

Harmonized Sales Tax New Brunswick businesses are required to apply and collect Harmonized Sales Tax (HST) on the sale of many items. The HST is a sales tax shared by the federal and provincial government. As of January 2008, the HST in New Brunswick dropped to 13%, of which 5% goes to the federal government and 8% goes to the provincial government.

Harmonized Sales Tax The accounting procedures involved for tax are complex. This course will provide an overview of only the basic concepts. Every company should have someone in the accounting department who fully understands HST as it relates to that business.

Harmonized Sales Tax The seller of goods or services is responsible for: Calculating tax and adding it to the price of goods sold Collecting the tax from customers Accumulating the tax collected in a specific liability account Remitting the accumulated tax to Canada Customs and Revenue Agency (CCRA) The account created to record tax collected on the sale of an item or service is HST Collected. HST Collected is a liability account and will appear on a company balance sheet.

Remitting the GST/HST Most businesses are required to file monthly or quarterly and must remit the net tax owed within one month following the end of their reporting period. The remittance must be accompanied by a tax return form – The Goods and Services Tax Refturn for Registrants.

Remitting the GST/HST Most businesses are required to file monthly or quarterly and must remit the net tax owed within one month following the end of their reporting period. The remittance must be accompanied by a tax return form – The Goods and Services Tax Return for Registrants.

Trend Analysis A useful technique for examining financial data is a trend analysis. It shows financial data over a number of consecutive periods.

Trend Analysis: An Example Sales: –19-1: $ –19-2: $ –19-3: $ –19-4: $ –19-5: $ –19-6: $ It is not easy to interpret these figures just by looking at them. When converted to percentages or put into a graph they are easier to analyze.

Trend Analysis: An Example –19-1: 100% –19-2: 109.1% –19-3: 136.4% –19-4: 81.8% –19-5: 190.9% –19-6: 203.6% Each of these figures is calculated by putting the sales figure for the year over the sales figure for year 1 and multiplying by 100.

Trend Analysis: An Example This is the formula: –( /55 000) * 100 = (rounded).

Trend Analysis: Using Excel Using Excel, we may do simple calculations within cells (as we’ve learned). To do this to find the percentages This is the formula: –( /55 000) * 100 = (rounded).

Trend Analysis: Using Excel Watch these very helpful tutorials to help you with Excel! –How to create a bar chart in Excel: vyQ vyQ –How to format cells in Excel: Aw Aw –How to setup Formulas in Excel: QI QI

Chapter 6 – Assignment #2 Go to the O:\Binet drive and open and complete: –Chapter 6 – Assignment #2.doc –Chapter 6 – Assignment #2.xls Please do this individually or in groups. This will be due MONDAY.