Wize University Introduction to Financial Accounting Textbook > Current Liabilities
Sales Tax Liabilities
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Sales Tax Liabilities
When a business provides goods and services to customers, it is required by law to also charge sales taxes on those transactions. This creates a liability for the company as it is required to remit the sales taxes to the government.
- Sales taxes are charged on most goods and services
- Sales tax srecorded as part of revenue.
- Liability account is created at the time of sale titledSales tax payable
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Example: Sales Tax Liabilities
ABC Inc. sells merchandise to customers on account. On June 13th, a customer purchased 20 units of a product for $30 per unit. The sale was subject to 10% sales tax. ABC Inc. transferred the collected taxes to the government agencies on June 25th.
Prepare the journal entry to record the sale and the repayment of the taxes to the government.
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Example: Sales Tax Liabilities
Apple sold a new iMac to a customer on August 23rd and collected a total of $4,540 in cash. The sale was subject to a 13.5% sales tax.
Prepare the journal entry to record the sale.
Practice: Sales Tax Liabilities
Prepare the journal entries to record the following transactions for Brownstein Inc.:
- Sold merchandise to a customer on July 3rd for $5,000. The sale is subject to a 13% sales tax and the customer paid in cash. Prepare the journal entry to record the sale.
- Sold merchandise to a customer on account on July 17th. The total amount to be collected from the customer within 30 days is $2,599 and the sale is subject to a 13% sales tax.
- Paid all sales taxes owed to the government on July 31st.
Sold merchandise to a customer on July 3rd for $5,000. The sale is subject to a 13% sales tax and the customer paid in cash. Prepare the journal entry to record the sale.
Transactions:
| Account | Debit | Credit |
|---|---|---|