Sales tax and assets account

Ben Ba benbarszcz at gmail.com
Thu Nov 15 18:33:45 EST 2012


Hi dear list,
I have troouble understanding sales tax issues.
I take my understanding from this text:"

Is sales tax an expense or a liability?

If a company sells $100,000 of product that is subject to a state sales tax
of 7%, the company will collect $107,000. It will record sales of
merchandise of $100,000 and will record a liability for sales tax of
$7,000. In this situation the company is acting as a collection agent for
the state by charging the $7,000 in sales tax. The company will have to
remit the $7,000 to the state shortly after collecting the money. When the
company remits the $7,000 to the state, the company will reduce its cash
and its sales tax liability. In this situation the sales tax is not an
expense and it is not part of the company’s sales revenues."


When I record income:Sales (106)  into Assets:Cash (100) and
Liability:SalesTax (6) as a split transaction then when the tax is due one
needs to subsequently transfer from Assets:Cash into Liability:SalesTax the
amount due. Which will deplete A:Cash account by another 6. This is wrong
in my opinion because Cash on hand will be by 12 less than in reality.
Where do I make a mistake?

-- 

saludos cordiales
BenBarszcz


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