Chapter 4: Accounting Applications

Bills, Bills, and More Bills

The price tag on the product is not necessarily what you pay for it. In 1789, Benjamin Franklin might have said it best when he wrote, “In this world nothing can be said to be certain, except death and taxes.”^[1] Almost everything is taxed, whether a physical good, a service, or even property.

For instance, while shopping on eBay, you find a product listed in an eBay store located in your home province.

Another product you need is listed by a seller in the United States. You need both products and the prices including shipping costs are reasonable, so for each you click the “Buy It Now” option. The Canadian invoice lists the product’s pre-tax price along with two more lines indicating GST and PST amounts, all totalled at the bottom. The US invoice lists the price of the item in US currency. When paying this seller, PayPal converts the price from US currency to Canadian currency using an exchange rate that does not quite match the rate you have seen published in the newspaper, and you wonder why. If you go with this US seller, you know that the Canada Border Services Agency (customs) will charge for GST.

This scenario highlights three of this chapter’s key topics: taxes, currency exchange, and invoicing.

• If there is one thing you encounter in all aspects of your life, it is sales tax, which provides revenue to governments in Canada and abroad. In addition, anyone involved in the ownership of real estate must deal with property taxes. Corporate offices, production facilities, and warehouses sit on business-owned real estate, which is charged property taxes. Residential homeowners pay annual taxes to their municipalities. Even if you just rent property like an apartment, the apartment building owner is charged property taxes, which are passed on to tenants within the rental charges.
• Canadian businesses and consumers operate in a global economy in which they commonly complete international transactions. Any payment will incorporate an exchange rate ensuring that the amount paid in Canadian currency is equivalent to the amount charged in the foreign currency.
• Many transactions are completed through an invoicing procedure. Along with a list of the items purchased and their respective prices, invoices show terms of payment, consequences of failing to make the payment, and additional charges such as taxes and shipping.

There is no avoiding sales taxes, property taxes, currency exchange, and invoicing. As a consumer, you generally need to pay these costs. As a business, you not only pay these costs but you need to charge your customers appropriately and collect taxes on behalf of the government. This chapter explores the mathematics behind these concepts.