An account that accrues sales tax that is owed to the government is referred to as a sales tax payable account. A customer who is purchasing goods is responsible for paying the amount due. A sales tax payable account is considered a credited account, due to the correlation with being a liability account. Even though the customer is responsible for paying the sales tax amount, the business is held liable for deducting the sales tax by government law. Due to the liability placed on the business, a sales tax payable account is considered to be a liability account, for example, if an individual goes into Bass Pro Shops and purchases numerous items, the customer will accumulate a sales tax on the items purchased. The business has the sole responsibility…show more content… To assess the tax amount added to the purchase amount, simply take the amount due for the purchase, in this case it would be $350.00, and multiply that by the 3% sales tax rate. Using the given formula, the customer would have a $10.50 sales tax added to the $350.00 merchandise amount, leaving the customer with a total bill of $360.50 owed to Bass Pro Shops. The accounts receivable would be deducted 360.50, but the sales account would be credited $350.00. The sales tax payable would be credited the sales tax amount of $10.50. Therefore, the total amount owed would credit sale for the amount purchased by the customer for Bass Pro Shops, credit sales tax payable for the sales tax rate owed, and deduct the account receivable for the total amount of the transaction. If done correctly, the debits and credits will align leaving the customers ledger in balance.
Understanding the importance of sales tax and sales tax payable accounts is a good concept for anyone to learn. Not only does it help those who are business owners and involved with corporate companies, but also it can assist in daily balancing of personal ledgers and financial
