The agreed cost of an item to be purchased by a business on credit is $4,000. The applicable cost will be debited to advertising expense. The item is subject to 5% goods and services tax (GST) and 7% provincial sales tax (PST). When this transaction is recorded, what amount will be recorded as GST Receivable?

Question

Quizplus · Accepted Answer

The GST that is applicable to the item will be recorded as GST Receivable. The GST amount is 5% of $4,000, which is $200. It will be debited to the advertising expense, and since the accounting equation must always be balanced, a corresponding credit entry is made to the GST Receivable account. Therefore, the amount recorded as GST Receivable is $200 debit.

The Agreed Cost of an Item to Be Purchased by a Business