Understanding taxes and the income statement

[Maf. King]

On Sunday, 21 May 2017 00:33:49 BST P M wrote:
> Very basic problem here.  I made an invoice for a service that I did.  I
> received $20.  Where I live I have to charge 7% tax.  So the revenue is
> actually $18.69 and the tax is 1.31.    My invoice has a subtotal of $18.69
> and a tax of 1.31.  I post it and get it paid and for some reason my tax
> expense is a -1.31.  In other words my net income is boosted by $1.31 as
> opposed to decreased to $1.31.  Why is this?  Is this because I haven't
> actually paid the sales tax yet and I close it out later?
> 

Hi,

If your sales tax works anything like VAT does here in the UK, the tax you've 
collected isn't an expense to you...  you should record the tax portion  as a 
liability - it isn't your money, it belongs to the government, you are just 
"looking after it" for them.  

HTH,
Maf.