What is sales tax payable in accounts?

The sales tax is a redirect tax that companies collect on behalf of the tax authorities. In the EU, the sales tax is called VAT (or value added tax).



Let’s say for example that product A attracts 10% sales tax while the tax exclusive price is $100. The final price is $110 and the accounting journals to record the transaction are:



Debit Cash 110

Credit Revenue 100

Credit Sales Tax 10




When the company pays the tax authority, the sales tax account will be cleared (debited) or in other words the journal is:



Debit Sales Tax Account 10

Credit Cash 10