Many bookkeepers for small law firms work part-time or on contract basis, and are not in the office every day. They do the bank reconciliations, and calculated the HST remittance, and payroll remittance all on one day. They then pass on the reports to the lawyer for payment.
The lawyer may wait till the end of the month when the HST when due, but many remit right away or by the 15th (same date as payroll).
The banks need to be reconciled by 25th. If the HST was remitted on the 15th, there is a gap of time from the HST payment and the prior month being closed. Examples of things that could affect the HST report are invoice write-offs and prior month expense invoices. A lot of law firms use The Conveyancer for their real estate closings, but may not enter their invoice into PCLaw until well after the closing date.
For example, I have a client that likes to pay his HST immediately after the 1st. His credit card statement is issued at the end of the month and arrives early in the following month, I usually do the entries during the 1st week of the month, but the HST has already been paid by this point in time. Posting the entries on the Statement Date in the prior month results in new HST input tax credits (ITC).
When I run the HST report for the next period, I will want to capture these ITC from the previous period. This is why it is important to run two HST reports:
- one for the current reporting period (change both the start and end date)
- one for all dates ending on the period ending date (change only the end date)
First create a HST Adjustments G/L account (G/L 2401)
If your current report shows more HST is owing than the G/L balance, run the report for the prior period. It should show a refund balance.
- to capture the refund, increase (credit) the HST owing (G/L 2400) by the refund amount for the prior period end date, and debit HST Adjustments (G/L 2401)
- on the 1st of the month, decrease (debit) the HST owing by the same amount, and credit HST Adjustments
- for your explanations, refer to the other date (eg HST adjustment – see July 1st, and HST adjustment – see June 30th)
- remember to checkmark the box “Show journal entry on HST journal”
Of course, if your current report shows less HST is owing than the G/L balance, run the report for the prior period. It should show a balance owing. Follow the above instructions but reverse the debits and credits.
As always, I invite your comments and suggestions for future post topics. Next Posting – What To Look For When Hiring a PCLaw Bookkeeper.