How would I process a GST payment to Revenue Canada that was for a prior fiscal year where no account payable for it was set up?

The situation I have is a new client I just took over  Fiscal year is Sept 1 to Aug 31.  I am starting my entries from Sept 1, 06 onward.  As I was going month by month, I came upon a payment to Revenue Canada for GST owing from the fiscal year 2004/05.  There was no payable set up by the previous bookkeeper.  So now I don't know how to process this payment.  What account do I put this expense into?

I don't have access to prior year entries before Sept 1, 06.  The GST account seems to be up to date (in that is only has current amounts for sales/paid.

 Should I just put this through as a general expense so it reduces the revenue, as I would assume the revenue for the year this is for had the GST lumped into it.  But again...I can't be certain as I can't check the records and cannot contact the previous bookkeeper.

Hi there:   A GST payment is not an expense.  It cannot be put to an expense account and end up reducing revenue. 

Did you not have opening balances for this company that you started entries for at Sept. 1/06?  How did you know what the opening bank balance was or the opening Retained Earnings, or the Fixed Asset values etc. were?   You say there was no account payable set up for the amount of the payment.  If you have a trial balance from Aug. 31, 2006, to start out the company with, there should have been GST Charged on Sales and GST Paid on Purchases accounts with balances.  (Not to mention all the other Balance Sheet balances that should have been brought forward.)

However, you say the amount paid was for 2004/05.  Do you have any paperwork from the GST people to document what that payment was for?   And just out of curiosity, what was happening about GST owing from 2005/06?   You say that the GST accounts are up to date -- but they only have what you have been entering.  Flip through your cheques written and see if somewhere further along there was a payment for the 2005/06 year. 

You do have a bit of a dilemma because you don't know if the full amount of Sales, including the GST Charged on Sales, was reported as Revenue.  If it was, and the GST Charged wasn't split out the way it should have been, then revenue for the previous years would have been overstated.  However, that doesn't help you much since you likely can't find out what happened.  I would ask the owners if they remember what happened and how the GST was being done.  The other thing you can do is to phone the GST people and ask for copies of all prior returns and assessment notices.  If you can get those it would be a good starting point.

In order to take care of recording the payment of GST for 2004/05, my thought would be to post the Credit to Bank and the Debit to Retained Earnings, Prior Year. But that would only be correct if your Retained Earnings balance when you entered your opening balances didn't agree and needed to be changed to reflect the GST Payment.   Were you the one that posted such a problem a few days ago -- that the opening balances were changing the Retained Earnings and that it didn't agree once you had put all the amounts from the trial balance in?   If not, disregard that question.

Anyway, do a little investigating before altering a prior year's Retained Earnings.  Rita Deering

Thanks for your reply Rita

 I do have a copy of the GST report sent to CRA.  That's how I found out the cheque was for that.  This client's records are quite a mess so it's been a challenge to figure things out especially when I have no way to contact the previous bookkeeper.

All I do have is a balance sheet ending Aug 31, 06.  There are some account balances for which I have no idea what they are for (payables and receivables), but the payable account is too low to include the GST.

The GST balance on the balance sheet only shows the GST owing for the 05/06 year.  So I have no idea what was done the prior year.  The client was way behind on his GST payments, so the 04/05 GST report was not filed until the beginning of 07.

It is frustrating trying to work with data with no history, but under the circumstances, I've told the client I'll do the best I can.

I could possibly make the adjustment to last year's retained earnings and let him know the amount will be skewed because of that.  By the time I finish entering all the 06/07 entries and rollover to next fiscal, that figure will be history anyway and be replaced with the 06/07 retained earnings I assume? 

Eventually any differences you find that relate to previous year(s) are going to be accounted for through Retained Earnings, but I agree it would be very helpful to you to try and get some paper that would guide you in the correct direction.

You have followed Rita's suggestions and the only other one I can add is to talk to the accountant who prepared the last tax return filed (either T2 for a corporation or T1 for a proprietorship/partnership).

By the sounds of the accounting/bookkeeping records you are facing this may be back quite a while. Whenever that was, you should find a balance sheet that will give you a starting point.

Good luck

Unfortunately, the bookkeeper was also the accountant.  I couldnt' find any returns in the paperwork passed to me and the client has no idea where the papers are.  So I may just have to tell the client that I plan to adjust the previous years earnings in order to process this GST payment. 

Now I just have to input everything again since I lost all the stuff I set up for this client this week when my computer died yesterday....argh (hadn't done a back up yet...)

Do you have authority to represent this client to the CRA? If yes, you can get back copies of tax returns and GST returns from them

NO, I don't have access to CRA for him.  I suppose I could always ask him to phone them to give me authority to ask for info.

What you need are the correct CRA authorizations. T1013 for personal and RC59 for corporate