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Appendix 5A

Financial Accounting
Course Code
Liang Chen

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Appendix 5A ± Sales tax
Sales Taxes collected on receipts
¾ The GST is a 7% personal consumption tax that is collected on most goods and
services provided in Canada
¾ There are GST exemptions that does not require to be taxed
¾ PST is a single-stage tax collected from final consumers on goods and services
¾ There are few exemptions
¾ GST and PST are excluded from the sales account as it is only collected to be
¾ The general entry would be: Cash/A.R debited, Sales Credited, GST/PST Payable
Sales returns and allowance
¾ If merchandise is returned, the general entry would be: Sales returns and allowances
debited, GST/PST payable debited, and Cash/A.R credited
Sales taxes paid on disbursements
¾ Businesses pay GST on their purchases, but are able to recover the GST.
Consequently, when merchandise is purchased, the GST paid by a business is not
part of the inventory cost
¾ The GST paid on purchases is debited to an account called GST recoverable and is
called an input tax credit
¾ This input tax credit is used to offset against the GST payable
¾ When GST is collected, the GST recoverable is subtracted from GST payable and the
net difference is remitted or reimbursed
¾ PST on the other hand, is paid only by the final consumer. Therefore, retail
businesses do not have to pay PST on any merchandise purchased for resale
Purchases of Merchandise
¾ Neither GST nor PST forms part of the cost of goods purchased
¾ The entry would be: Merchandise inventory debited, GST recoverable debited, and
A/P credited
Purchase Returns and Allowance
¾ The general entry for this would be: A/P debited, GST recoverable credited, and
Merchandise Inventory credited
Operating Expenses
¾ PST and GST must be paid for many operating expenses
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