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Reasons Why Account Sales Tax Payable Is Credited
Sales taxes or the Value Added Tax refers to a liability account stored as the total amount of sales taxes that a business has collected from customers on behalf of a governing tax authority from the sales of goods and services. The company that makes the sale collects the sales tax acting as the state’s tax collector, which has to be remitted as an indirect tax. It means that the ultimate customer bears tax burden. A firm acquires goods from the suppliers and also pays taxes for them which it would recover from the tax authority. Melville (155) alludes that the tax paid is thus the difference between the sales tax paid on purchases (input tax) and the sales tax it collects from the customers (output tax). However, if the output tax is more than the input tax, the organization should recover the difference from the tax authority which is mostly carried forward to be offset in the next trading period. Sales tax is a credit on the basis of a tax agent for the government.
It is assumed that all the participants in the supply chain can pass the taxes paid to their customers unless they are the final consumers. In this regard, the crediting the sales tax account occurs because the firm is only collecting the tax on behalf of the government and it cannot be shown in its records as part of income (Melville 154). Hence, the recorded sales revenue is net of any sales taxes that t…
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