How do I record Sales Tax?

If you have a business that has to collect sales tax, when you record your sales figures, there should be a separation for the portion of sales tax you are collecting from your regular sales. For example, you sell 10,000 in retail sales but with sales tax the total you collected was $10800. Your entry for bookkeeping purposes should be reflected as a debit to your bank account and the two credits, one to the sales account for $8000 and one to the sales tax liability account for $800. Do not record the sales tax portion as sales. Some people record the total amount collected as sales and then back out the sales tax from the sales account each quarter. However this is not correct because it overstates your monthly sales figures. Sales tax is not considered an expense, it is considered an item you are collecting for the government. Sales tax should never be recorded as an expense item.

Provided by Alamo Bookkeeping Associates