Sales Taxes Payable - When the company remits the taxes to...

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Sales Taxes Payable Many of the products we purchase at retail stores are subject to sales taxes. Many states are now implementing sales taxes on purchases made on the Internet as well. Sales taxes are expressed as a percentage of the sales price. The selling company collects the tax from the customer when the sale occurs and periodically (usually monthly) remits the collections to the state's department of revenue. Helpful Hint Watch how sales are rung up at local retailers to see whether the sales tax is computed separately. Under most state laws, the selling company must ring up separately on the cash register the amount of the sale and the amount of the sales tax collected. (Gasoline sales are a major exception.) The company then uses the cash register readings to credit Sales and Sales Taxes Payable. For example, if the March 25 cash register readings for Cooley Grocery show sales of $10,000 and sales taxes of $600 (sales tax rate of 6%), the journal entry is: Sales Taxes Payable (To record daily sales and sales taxes)
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Unformatted text preview: When the company remits the taxes to the taxing agency, it decreases (debits) Sales Taxes Payable and decreases (credits) Cash. The company does not report sales taxes as an expense; it simply forwards to the government the amount paid by the customer. Thus, Cooley Grocery serves only as a collection agent for the taxing authority. Sometimes companies do not ring up sales taxes separately on the cash register. To determine the amount of sales in such cases, divide total receipts by 100% plus the sales tax percentage. For example, assume that Cooley Grocery rings up total receipts of $10,600. Because the amount received from the sale is equal to the sales price 100% plus 6% of sales, or 1.06 times the sales total, we can compute sales as follows: $10,600 1.06 = $10,000. Thus, we can find the sales tax amount of $600 by either (1) subtracting sales from total receipts ($10,600 - $10,000) or (2) multiplying sales by the sales tax rate ($10,000 6%)....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.

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Sales Taxes Payable - When the company remits the taxes to...

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