Sales tax is a kind of tax that is charged to the customer whenever the customer makes purchase of a certain product. The sales tax is charged by the company on the behalf of government and is charged according to the nexus concept. Sales tax is charged to the customer and is also entered at the end of the every sales invoice or bill. The sales tax is collected by the company and eventually paid to the state government by the company.
Accounting of sales tax is quite simple and is done on following a number of steps. First of all whenever a sales tax is billed to the customer the entry of the sales tax is entered in Journal and is accounts receivable of the journal are debited equals to the entire amount of the invoice. The portion of the invoice that contains the amount billed for products and services are credited to sales account of the journal and the sales tax billed is added to the liability account of the journal as it has to be paid to the government.
At the end of each month or each accounting period the company will fill a sales tax remittance form and will submit the entire sales tax recorded in liability account of journal to the government. Sometimes the company can pay sales tax even before the customer has paid it. In certain cases when a customer does not pay the sales tax the company issues a credit memo that reverses the amount of sales tax liability account showing that the company has already paid the sales tax so the non payment will be treated as a reduction of that portion in the next sales tax remittance to government.
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