U2 L10 Accounting for PST and GST

U2 L10 Accounting for PST and GST - Accounting for PST and...

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When a business sells goods or services to its customers, it must charge sales tax on behalf of the government. Periodically, the business is required to forward the sales tax that it has collected to the government. The government uses this sales tax, along with other types of taxes it charges the public, to provide citizens with various programs and services. In Canada, GST (Goods and Services Tax) is a tax charged on the sales of most goods and services. GST is a federal tax which was implemented by the government on January 1, 1991. It recently changed from 7% to 6% in 2006. Each province in Canada also collects PST (Provincial Sales Tax) , which is a retail sales tax also charged on the price of goods and services purchased by a final consumer. The rates of PST vary from province to province. In Ontario, PST is 8%. Since businesses are required to charge these taxes to consumers, there must be a method of accounting for the collection of them, and then the subsequent remittance (payment) of them to the appropriate governments. GST is remitted to the federal government, and PST is remitted to the provincial government. Since the two taxes are sent to different governments, they must be accounted for separately. Accounting for Provincial Sales Tax (PST) In Canada, PST is charged to the final customer only. Therefore, if a purchase is made by a retailer, from a manufacturer or wholesaler , of goods that will be later sold to customers, the retailer is exempt from paying PST on those goods. In this case, the retailer is not the final customer. Therefore, most of the time, businesses are exempt from paying PST on their purchase of goods and services. However, if a business is a final consumer (i.e. company purchases cleaning supplies to be used in the business), the business will pay PST on the goods, but will include the PST in the cost of the goods that it is purchasing. When a business charges PST on the sale of goods or services to a final customer, the business must account for the PST in a separate account, so that it can later forward these funds to the government. The account that PST is collected in is a liability account called PST Payable . This account is a liability because the balance is an amount that is owed to, and periodically paid back to, the government. Therefore, when a sale is made and the business collects PST, the PST Payable account increases in value (credited) and when PST is paid back to the government, the PST Payable account decreases in value (debited). Follow the example given below:
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This note was uploaded on 07/15/2011 for the course AFM 102 taught by Professor Aa during the Summer '07 term at Court Reporting Institute of Dallas.

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U2 L10 Accounting for PST and GST - Accounting for PST and...

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