Asked by Leticia Miranda on May 09, 2024
Verified
When a business sells an item and collects Harmonized Sales Tax (HST) on it, a current liability arises.
Harmonized Sales Tax (HST)
A combined tax in some Canadian provinces that merges the federal goods and services tax (GST) with the provincial sales tax (PST) into a single value-added tax.
Current Liability
Obligations or debts that a company needs to settle within one year or one business cycle, whichever is longer.
- Identify the nature of current liabilities and their impact on liquidity.
Verified Answer
BR
Bryan RamirezMay 15, 2024
Final Answer :
True
Explanation :
When a business collects Harmonized Sales Tax (HST) on a sale, it is collecting tax on behalf of the government, which it must remit at a later date. Until it is remitted, the collected HST is considered a current liability because it is an obligation that the business owes and is typically due within the next operating cycle or year.
Learning Objectives
- Identify the nature of current liabilities and their impact on liquidity.