When HST is remitted to the Canada Revenue Agency, is credited and is debited.
Select one: A. Cash; Sales B. HST Payable; Cash C. HST Expense; Cash D. Cash; HST Payable
The correct answer and explanation is:
The correct answer is B. HST Payable; Cash.
When Goods and Services Tax (GST) or Harmonized Sales Tax (HST) is remitted to the Canada Revenue Agency (CRA), the accounting entries reflect the payment made from the business to the tax authority. Here is the breakdown:
- HST Payable: This is a liability account that represents the amount of HST that the business has collected from its customers but has not yet remitted to the CRA. When the business collects HST on sales or services, it credits this account to show that it owes that amount to the CRA.
- Cash: This is an asset account that reflects the money the business holds. When the business remits the collected HST to the CRA, it reduces its cash balance by the amount of the payment. Hence, cash is debited (reduced), while HST Payable is credited (reduced).
The transaction ensures that the business is fulfilling its tax obligations. The HST Payable account is debited because the liability (the owed amount) is being cleared. At the same time, Cash is credited because the business is using its available cash to make the payment to the CRA.
Example
Imagine a business collects $1,000 in HST from customers. It will record the HST as a liability (credit HST Payable) when the sale is made. Later, when the business remits this amount to the CRA, the payment reduces its cash reserves (debit Cash) and eliminates the liability (debit HST Payable). This keeps the company’s accounts balanced while ensuring it remains compliant with tax regulations.