What is the journal entry to record sales tax?
Sales tax is a pass thru activity, which means that the company simply collects the sales tax from the customer and pass it on to the government. When the company sells and item and collects sales tax, the debit would be to cash, and the credits would be to sales revenue and sales tax payable (liability).
The sales tax is recorded as a liability because the company has to remit the cash to the government. When sales tax is remitted to the government, the debit would be to sales tax payable and a credit to cash (cash outflow to pay sales tax).
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