The Basic Applications Of Accounting For Sales Tax
In any business, the goal is to sell to make a profit despite a levy called sales tax. However, what can this tax indicate? This tax is a local tax on sale of products or services, according to the percentage of sales price. In other terms, when a company sells a product or renders services, it is subject to a sales tax. The company or business establishment must collect the sales tax and then pass it on to the government.
Is accounting for sales tax very important in a business or company?
Definitely, accounting is very much important in any business, big or small. This is because this is government mandated. Therefore, if a company or business does not subject itself to have accounting for their sales tax then they will be held liable for violating rules and regulations that can be filed to them by the government. Many companies go out of business when they fail to abide by federal and state policies regarding sales tax and other taxes.
How does accounting for sales taxes work?
Sales taxes, which are paid by the customers but are still not yet subjected to the tax authorities, are typically recorded in the book of sales tax payable account. There are two different ways to do the recording of sales taxes on the companies’ books. According to the first method, the sales taxes are mirrored back on their own account. On the other hand, for the second method, the sales taxes are initially written down as part of the sales account or the sales revenue, which are then transferred to their own account, which is the sales taxes payable.
• For the first method, the sales amount without the sales taxes are entered in the sales revenue account. The sales taxes are then credited to the account of sales taxes payable.
• More often companies and establishments do not segregate or do not separate sales taxes from the sales revenues during the time of the sale or purchase. In this case, the sales tax is just deducted from the entire sum amount of the sales revenues or the so-called total sales. To be able to transfer or shift the sales taxes from the sales revenue account, the establishments debit or deduct the sales revenue account and then credit or add the sales taxes payable account.
Others may see and regard accounting as easy but there are many things that need to be taken into consideration. The taxes differ not only with the price but also with the mode of payment and the state where it is sold. Hence, a tip that new and upcoming business owners must seriously consider is to hire a good accountant to do all the necessary accounting as well as the necessary book keeping in your behalf. With proper bookkeeping, you as the owner can see and recognize how much percentage must be placed under the revenue and what amount must be placed under the payables. Accounting is more than just debits and credits.
It is very difficult for one person to take note of all these steps in accounting and record keeping. That is the reason why businesses and organizations create a specific department solely assigned to do all the accounting for them and develop or acquire systems to make things easier. It is very difficult for one company to compromise the entirety of the business due to wrong account process. Accounting for sales tax is imperative. A growing company cannot afford to be branded as a company who evades tax or who does not state the taxes that should have been presented.
