Tax and accounting terms
Accounts Payable vs Accounts Receivable: What Each Means for Tax and Cash
Invoice dateis usually when GST/HST on a sale becomes reportable, whether or not the customer has paid, and when the tax on a supplier's bill becomes claimable.
Sources checked October 20263 min read
Two sides of the same invoice
Accounts receivable are amounts customers owe the business for goods or services already delivered and invoiced. Accounts payable are amounts the business owes its suppliers for bills it has received but not yet paid. One company's receivable is another's payable: the same invoice sits on both sets of books.
Receivables are a current asset and payables a current liability, reported on a corporation's GIFI as codes 1060 and 2620. Both exist only under the accrual method, which the CRA requires for most business income, because accrual counts income when it is earned and expenses when they are incurred.
Key points
- Receivables are amounts customers owe for work already invoiced; payables are amounts owed to suppliers for bills received
- Under the accrual method both count in income and expenses before any money moves
- GST/HST on an unpaid invoice is reported in the period it is issued, and credits can be claimed on unpaid bills
- A bad debt can be deducted for income tax and its GST/HST recovered
What receivables mean for tax
An invoice issued in December is income for that year even if the customer pays in January. The GST/HST on it is owed in the reporting period of the invoice too, because tax becomes payable on the earlier of the day payment is received and the day it is due, and the CRA usually treats payment as due on the invoice date. A business with large receivables at the end of a quarter can owe GST/HST it has not yet collected.
What payables mean for tax
A supplier bill for work done this year is an expense this year under the accrual method, even when it is paid next year. Input tax credits work the same way: a registrant can claim the GST/HST on a bill as soon as it has been invoiced, without waiting to pay it. Most registrants have about four years to claim a credit they missed, counted from the end of the reporting period in which it could first have been claimed.
When a receivable goes bad
A receivable that cannot be collected can be deducted as a bad debt for income tax if the amount was already included in income and the business determined in the year that it is bad. The GST/HST already remitted on it can be recovered as well, as an adjustment on the GST/HST return, provided the customer deals at arm's length and the debt is written off in the books. The adjustment has to be claimed on a return filed within four years of the due date of the return for the period of the write off, and if the customer later pays part of the debt, the GST/HST portion goes back on the return.
| Step | Amount |
|---|---|
| Credit sale, including GST | $10,500 |
| GST charged and remitted | $500 |
| Paid by the customer | $6,300 |
| Unpaid balance written off | $4,200 |
| GST recovered: $500 × $4,200 ÷ $10,500 | $200 |
Quick answers
Is accounts receivable an asset or a liability?
An asset. It is money the business expects to collect, shown as a current asset. Accounts payable is a current liability.
Do I pay GST on invoices customers have not paid?
Yes, in most cases. GST/HST is reported in the period the invoice is issued, whether or not the customer has paid, and can be recovered later through a bad debt adjustment if the customer never pays.
Can I claim input tax credits before paying a supplier?
Yes. A registrant can claim the GST/HST on a bill once it has been invoiced, without waiting to pay it, as long as it holds the supporting documents.
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Official sources
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Important. This article provides general educational information, not legal or tax advice for a specific business. Rules, administrative policies, rates and deadlines can change. Confirm your facts and current obligations with the responsible government agency and a qualified adviser.