Question

On June 30, Jones Company owes and pays a total of $850 of sales taxes to the state. The journal entry to record the payment of sales taxes would include which of the following?

A credit to Sales Taxes Payable for $850

A debit to Cash for $850

A debit to Sales Taxes Payable for $850

A debit to Sales Tax Expense for $850

Answer 1

Option C (A Debit to Sales Tax Payable of $ 850) is the Correct Answer to the Problem.

Supporting Work:-

Sales Tax Payable is a tax liability which a business collects tax on behalf of the government. It is not an expense for the business but a Liability which is created when the business collects the amount of sales tax with the sales revenue which is later payable to government in future time as per the government defined guidelines. As it is a Liability so whenever it is paid back the sales tax payable account should be debited to reduce the Liability. The following are the accounting treatment to be followed

When Sales in Recorded Following Entry is to be made

Cash / Accounts Receivables A/C..Dr

To Sales Revenue

To Sales Tax Payable

When Payment of Sales Tax us to be Done

Sales Tax Payable A/C..Dr

To Cash A/C

In the first entry sales tax payable liability is created by Crediting the Sales Tax Payable and it is reduced at the time of payment by debiting the sales tax payable.so for above questions a debit to sales tax payable is the correct answer.