Incomes Statement & Balance Incomes Statement & Balance Sheet PresentationSheet Presentation

Accounting for the Accounting for the

Goods and Services Tax.Goods and Services Tax.FA2 – Lesson 2FA2 – Lesson 2

What is Goods and Services Tax What is Goods and Services Tax (GST)(GST)

Federal Tax Federal Tax Variation on Value Added Tax (VAT)Variation on Value Added Tax (VAT) Extends the VAT concept to cover ServicesExtends the VAT concept to cover Services Applied Applied beside beside Provincial Sales Tax (PST)Provincial Sales Tax (PST)

ApplicationApplication

Not just a consumer taxNot just a consumer tax Applies to exchanges of goods and services Applies to exchanges of goods and services

at ALL levels of commerceat ALL levels of commerce

RatesRates

7% (7% (most common)most common) 0%0% ExemptExempt

ExampleExampleSelling Selling PricePrice

Tax Tax CollectedCollected

Tax Paid Tax Paid OutOut

Tax to Tax to Gov’tGov’t

Resource Co.Resource Co. $100$100 $ 7.00$ 7.00 $ 0$ 0 $ 7.00$ 7.00

Manu Co.Manu Co.

Whole Co.Whole Co.

Retail Co.Retail Co.

ConsumerConsumer$ 7.00$ 7.00

ExampleExampleSelling Selling PricePrice

Tax Tax CollectedCollected

Tax Paid Tax Paid OutOut

Tax to Tax to Gov’tGov’t

Resource Co.Resource Co. $100$100 $ 7.00$ 7.00 $ 0$ 0 $ 7.00$ 7.00

Manu Co.Manu Co. $140$140 $ 9.80$ 9.80 $ 7.00$ 7.00 $ 2.80$ 2.80

Whole Co.Whole Co.

Retail Co.Retail Co.

ConsumerConsumer $ 9.80$ 9.80

ExampleExampleSelling Selling PricePrice

Tax Tax CollectedCollected

Tax Paid Tax Paid OutOut

Tax to Tax to Gov’tGov’t

Resource Co.Resource Co. $100$100 $ 7.00$ 7.00 $ 0$ 0 $ 7.00$ 7.00

Manu Co.Manu Co. $140$140 $ 9.80$ 9.80 $ 7.00$ 7.00 $ 2.80$ 2.80

Whole Co.Whole Co. $160$160 $11.20$11.20 $ 9.80$ 9.80 $ 1.40$ 1.40

Retail Co.Retail Co.

ConsumerConsumer $11.20$11.20

ExampleExampleSelling Selling PricePrice

Tax Tax CollectedCollected

Tax Paid Tax Paid OutOut

Tax to Tax to Gov’tGov’t

Resource Co.Resource Co. $100$100 $ 7.00$ 7.00 $ 0$ 0 $ 7.00$ 7.00

Manu Co.Manu Co. $140$140 $ 9.80$ 9.80 $ 7.00$ 7.00 $ 2.80$ 2.80

Whole Co.Whole Co. $160$160 $11.20$11.20 $ 9.80$ 9.80 $ 1.40$ 1.40

Retail Co.Retail Co. $200$200 $14.00$14.00 $11.20$11.20 $ 2.80$ 2.80

ConsumerConsumer $14.00$14.00 $14.00$14.00

ExampleExampleSelling Selling PricePrice

Tax Tax CollectedCollected

Tax Paid Tax Paid OutOut

Tax to Tax to Gov’tGov’t

Resource Co.Resource Co. $100$100 $ 7.00$ 7.00 $ 0$ 0 $ 7.00$ 7.00

Manu Co.Manu Co. $140$140 $ 9.80$ 9.80 $ 7.00$ 7.00 $ 2.80$ 2.80

Whole Co.Whole Co. $160$160 $11.20$11.20 $ 9.80$ 9.80 $ 1.40$ 1.40

Retail Co.Retail Co. $200$200 $14.00$14.00 $11.20$11.20 $ 2.80$ 2.80

ConsumerConsumer $14.00$14.00 $14.00$14.00

Account for the Goods and Account for the Goods and Services Tax.Services Tax.

GST collected is not part of the GST collected is not part of the entity's revenue but is a liability to revenue but is a liability to the government.the government.

GST paid is not part of the cost of GST paid is not part of the cost of purchases but is a receivable from purchases but is a receivable from the government.the government.

The receivable and payable can be The receivable and payable can be offset against each other to show offset against each other to show either a net receivable or payable.either a net receivable or payable.

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Under the quick method, revenues would Under the quick method, revenues would include the GST charged to the customer. include the GST charged to the customer. However, the amount remitted to the However, the amount remitted to the government would be shown as a contra government would be shown as a contra account to sales. As a result, revenues would account to sales. As a result, revenues would be reported net of GST remitted.be reported net of GST remitted.