Accounting for Sales Tax

When you create an invoice for a taxable sale, several accounts are affected. Not only do you increase your sales revenue account and your accounts receivable account (or cash, if it is a cash sale), but your sales tax liability account is affected as well. Then, at the end of the month, when you pay your sales tax, the liability account is reduced. Here's how a sample transaction is recorded in QuickBooks.

An invoice is issued for the sale of $100 of taxable items and $5 sales tax, for a total of $105. Here are the accounts that are affected:

	Debit	Credit
Accounts Receivable	105.00
Revenue		100.00
Sales Tax Payable		5.00

Note that if the item you sold is an inventory item that cost you $60, these accounts are affected as well:

	Debit	Credit
Cost of Sales	60.00
Inventory		60.00

When you ultimately pay your sales tax, these accounts are affected for the total amount of your current liability:

	Debit	Credit
Sales Tax Liability	xx.xx
Cash		xx.xx