1. The Journal and Source Documents Watch video below before proceeding
Unit 3 : Chapter 6
The Journal and Source Documents
Watch video below before proceeding

2. Sales Taxes
Whenever someone buys something from another person, it is a business transaction.
Most business transactions in Canada are taxed by the Canadian government.
Governments use the tax dollars to fund important services such as health care, education and social assistance program.
Tax dollars generated from business transactions are referred to as sales taxes.

3. Sales Tax
Taxation regulation (Tax Law) are complex, so businesses rely on accountants to solve tax problems.
There are 4 basic taxation principles
Only buyers pay for the tax.
Seller collects the tax dollars and record it in separate liability account called “HST payable”
The tax dollars belong to the government. (not to the business which collects the tax)
The seller sends the tax dollars to the government at appointed times such as once a month.

4. HST HST is a value added sales tax.
Value Added Sales Tax means that HST is charged to both goods and services as they pass through the different stages of production and delivery.
HST is 13% of the price. For example, if the price is $100 * 0.13 = $13 so final price is $113.
In Ontario, seller has to charge HST on most goods or services. Then the seller must submit the HST amounts to the government.

5. HST

6. HST For example, a basketball is made of rubber and leather.
Rubber and Leather manufacturer charges $10 + HST = $11.30
Nike must pay $11.30 to the rubber and leather manufacturer. After making the basketball, Nike charges 20 + HST =
Sports Check bought it at They charge 30 + HST = 33.90

7. HST Retail customer has to pay 33.90.
Journal Entry for HST from Sports Check perspective.
On Feb 15, Sports Check sold a basketball to a customer who paid cash, so journal entry would be
Dr Cr
Bank
Sales revenue 30
HST payable

8. HST Journal Entry for HST
On Feb 2, Sports Check bought a basketball from Nike. Sprots Check would record:
Dr. Cr.
Purchase (expense) 20
HST recoverable 2.60
Bank

9. Journal Entry for HST
We use HST recoverable account whenever business pays HST amount. Instead of debiting HST payable account, business would debit HST recoverable account.
HST recoverable account is a contra account of the HST payable account.

10. Journal Entry for HST
How much HST money do Sports Check have to remit to the government? (Show T account)
Ending balance of HST payable – Ending balance of HST recoverable
Answer: = so at the end of February, Sports Check will send 1.30 to the government.

11. Summary
When a business sells service or goods, they would collect the HST (13%) and credits “HST payable” account.
When a business buys service or goods, they would pay HST (13%) and debits “HST recoverable” account.
The business must send HST amount to the CRA (Canada Revenue Agency) after subtracting HST recoverable amount from HST payable amount.