1. Incomes Statement & Balance Sheet Presentation Accounting for the Goods and Services Tax. FA2 – Lesson 2

2. What is Goods and Services Tax (GST) Federal Tax Federal Tax Variation on Value Added Tax (VAT) Variation on Value Added Tax (VAT) Extends the VAT concept to cover Services Extends the VAT concept to cover Services Applied beside Provincial Sales Tax (PST) Applied beside Provincial Sales Tax (PST)

3. Application Not just a consumer tax Not just a consumer tax Applies to exchanges of goods and services at ALL levels of commerce Applies to exchanges of goods and services at ALL levels of commerce

4. Rates 7% (most common) 7% (most common) 0% 0% Exempt Exempt

5. Example Selling Price Tax Collected Tax Paid Out Tax to Gov’t Resource Co. $100 $ 7.00 $ 0 $ 7.00 Manu Co. Whole Co. Retail Co. Consumer $ 7.00

6. Example Selling Price Tax Collected Tax Paid Out Tax to Gov’t Resource Co. $100 $ 7.00 $ 0 $ 7.00 Manu Co. $140 $ 9.80 $ 7.00 $ 2.80 Whole Co. Retail Co. Consumer $ 9.80

7. Example Selling Price Tax Collected Tax Paid Out Tax to Gov’t Resource Co. $100 $ 7.00 $ 0 $ 7.00 Manu Co. $140 $ 9.80 $ 7.00 $ 2.80 Whole Co. $160$11.20 $ 9.80 $ 1.40 Retail Co. Consumer$11.20

8. Example Selling Price Tax Collected Tax Paid Out Tax to Gov’t Resource Co. $100 $ 7.00 $ 0 $ 7.00 Manu Co. $140 $ 9.80 $ 7.00 $ 2.80 Whole Co. $160$11.20 $ 9.80 $ 1.40 Retail Co. $200$14.00$11.20 $ 2.80 Consumer$14.00$14.00

9. Example Selling Price Tax Collected Tax Paid Out Tax to Gov’t Resource Co. $100 $ 7.00 $ 0 $ 7.00 Manu Co. $140 $ 9.80 $ 7.00 $ 2.80 Whole Co. $160$11.20 $ 9.80 $ 1.40 Retail Co. $200$14.00$11.20 $ 2.80 Consumer$14.00$14.00

10. Account for the Goods and Services Tax. GST collected is not part of the revenue but is a liability to the government. GST collected is not part of the entity's revenue but is a liability to the government. GST paid is not part of the cost of purchases but is a receivable from the government. GST paid is not part of the cost of purchases but is a receivable from the government. The receivable and payable can be offset against each other to show either a net receivable or payable. The receivable and payable can be offset against each other to show either a net receivable or payable.

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