When affected by sales tax, you on one hand must keep in mind that the tax is not part of your revenue. On the other hand you still must treat the tax on your statements.<\/p>\n
It\u2019s one thing declaring the tax \u2013 there are declarations, forms etc. applicable in your country and subject to local guidance. Each country has its own specific regulations for which we suggest you consult your local advisor or legislation yourself.\u00a0<\/p>\n
However, accounting is something that\u2019s most likely the same across accounting standards in various countries.<\/p>\n
For our example let\u2019s presume that the gross selling price is 118 and the net selling price is 100. This way as you can see, the tax payable from the sale is 18 (that is 18% of the net selling price). When first making the sale, your accounting entry is as follows:<\/p>\n
Db \u00a0\u00a0\u00a0\u00a0\u00a0 Account receivable 118<\/p>\n
Cr \u00a0\u00a0\u00a0\u00a0\u00a0 Sales revenue 100<\/p>\n
Cr \u00a0\u00a0\u00a0\u00a0\u00a0 Taxes payable 18<\/p>\n
Why would you recognize the account receivable as gross? Well, you would do this so because you expect your clients essentially pay the tax and not you yourself. If you think about it, isn\u2019t it always you who pays the invoices gross, that is including the tax as well.<\/p>\n
When the tax is paid, you make the following entry:<\/p>\n
Db \u00a0\u00a0\u00a0\u00a0\u00a0 Taxes payable 18<\/p>\n
Cr\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Cash and cash equivalents 18<\/p>\n
Once your clients pay their balances, you account for the collection:<\/p>\n
Db \u00a0\u00a0\u00a0\u00a0\u00a0 Cash and cash equivalents 118<\/p>\n
Cr\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Account receivable 118<\/p>\n
With this you\u2019ve accounted for the sale, for the receivable and also paid taxes. Regardless whether the client pays before or after you\u2019ve paid your taxes, you will collect the tax payable from your client.<\/p>\n","protected":false},"excerpt":{"rendered":"
When affected by sales tax, you on one hand must keep in mind that the tax is not part of your revenue. On the other hand you still must treat the tax on your statements. It\u2019s one thing declaring the tax \u2013 there are declarations, forms etc. applicable in your country and subject to local […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,39],"tags":[],"class_list":["post-4685","post","type-post","status-publish","format-standard","hentry","category-1-basic-accounting","category-1-11-revenue"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4685","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/comments?post=4685"}],"version-history":[{"count":1,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4685\/revisions"}],"predecessor-version":[{"id":4686,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/posts\/4685\/revisions\/4686"}],"wp:attachment":[{"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/media?parent=4685"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/categories?post=4685"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.officetodo.com\/public\/wp-json\/wp\/v2\/tags?post=4685"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}