• Submitted By: fgmeda05
  • Date Submitted: 05/01/2014 10:33 AM
  • Category: Business
  • Words: 312
  • Page: 2

As a consumer, you know that many of the products you purchase at retail
stores are subject to sales taxes. Many states also are now collecting sales
taxes on purchases made on the Internet. Sales taxes are expressed as a
stated percentage of the sales price. The retailer collects the tax from the
customer when the sale occurs. Periodically (usually monthly), the retailer remits
the collections to the state’s department of revenue.
Under most state sales tax laws, the selling company must ring up separately on
the cash register the amount of the sale and the amount of the sales tax collected.
(Gasoline sales are a major exception.) The company then uses the cash register
readings to credit Sales and Sales Taxes Payable.

When the company remits the taxes to the taxing agency, it debits Sales Taxes
Payable and credits Cash.The company does not report sales taxes as an expense.
It simply forwards to the government the amount paid by the customers. Thus,
Cooley Grocery serves only as a collection agent for the taxing authority.
Sometimes companies do not ring up sales taxes separately on the cash register.
To determine the amount of sales in such cases, divide total receipts by 100%
plus the sales tax percentage. To illustrate, assume that in the above example
Cooley Grocery rings up total receipts of $10,600. The receipts from the sales are
equal to the sales price (100%) plus the tax percentage (6% of sales), or 1.06 times
the sales total

Every employer incurs liabilities relating to employees’ salaries and wages. One is
the amount of wages and salaries owed to employees—wages and salaries payable.
Another is the amount required by law to be withheld from employees’ gross pay.
Until a company remits these withholding taxes (federal and state income taxes,
and Social Security taxes) to the governmental taxing authorities, they are credited
to appropriate liability accounts.

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