How to Make Journal Entries for Sales Tax

Save

As of the date of publication, 45 states and the District of Columbia collect sales tax, as do a number of municipalities. Unless you conduct business in Delaware, New Hampshire, Oregon, Alaska or Montana, you must adopt the proper journal entries to document all transactions that include sales tax. When you account for sales tax, you must record two separate journal entries -- one when you make the sale and the other when you pay the sales tax collector. Although recording the sales tax at the time of the sale generates a business liability, you eliminate the liability once you pay the tax.

  • Multiply the sales tax percentage by the total amount of the sale to determine the appropriate sales tax. For example, if you sold $100 in merchandise and your state requires you to charge 6.5 percent sales tax, multiply $100 by 6.5 percent. The sales tax is $6.50. Depending on the jurisdiction in which you conduct service, you might be required to collect local sales tax as well as state tax.

  • Add the sales tax to the price of the sale to determine the total amount due. Using the previous example, the total amount due is $106.50 ($100 plus $6.50). Collect this amount from the customer.

  • Debit the "Cash" account for the total amount collected if the customer paid cash. If the customer paid using credit, debit the "Accounts Receivable" account. Using the previous example, if the customer paid cash, write "$106.50" in the "Debit" column in the "Cash" account.

  • Credit the "Sales" account for the amount of the sale. Do not include the sales tax in this journal entry. In this example, write "$100" in the "Credit" column in the "Sales" account.

  • Credit the "Sales Tax Payable" account for the total amount of sales tax collected. Using the previous example, write "$6.50" in the "Credit" column in the "Sales Tax Payable" account.

  • Debit the "Cash" account once you receive payment from customers who pay with a credit card. Credit the "Accounts Receivable" account for the same amount.

  • Debit the "Sales Tax Payable" account when you make the sales tax payment to your state and/or local sales tax collector. If sales tax payments are due once a month and you collected $550 in sales tax for the period, write "$550" in the "Debit" column of the "Sales Tax Payable" account.

  • Credit the "Cash" account for the amount of sales tax due. This amount should be equal to the amount you debited from the "Sales Tax Payable" account. Using the previous example, write "$550" in the "Credit" column of the "Cash" account.

Tips & Warnings

  • A debit increases the amount in the account. A credit decreases the amount in the account.

References

  • Photo Credit Hemera Technologies/Photos.com/Getty Images
Promoted By Zergnet

Comments

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!