This document discusses sales tax, including how it is an indirect tax on goods and services, administered by local authorities. Registered businesses charge output sales tax on sales and pay input sales tax on purchases. The difference between the two is either paid to or refunded by the tax authorities. Registered traders must account for output and input sales tax separately. Irrecoverable sales tax must be treated as a cost.
This document discusses sales tax, including how it is an indirect tax on goods and services, administered by local authorities. Registered businesses charge output sales tax on sales and pay input sales tax on purchases. The difference between the two is either paid to or refunded by the tax authorities. Registered traders must account for output and input sales tax separately. Irrecoverable sales tax must be treated as a cost.
This document discusses sales tax, including how it is an indirect tax on goods and services, administered by local authorities. Registered businesses charge output sales tax on sales and pay input sales tax on purchases. The difference between the two is either paid to or refunded by the tax authorities. Registered traders must account for output and input sales tax separately. Irrecoverable sales tax must be treated as a cost.
This document discusses sales tax, including how it is an indirect tax on goods and services, administered by local authorities. Registered businesses charge output sales tax on sales and pay input sales tax on purchases. The difference between the two is either paid to or refunded by the tax authorities. Registered traders must account for output and input sales tax separately. Irrecoverable sales tax must be treated as a cost.
Sales tax an indirect tax levied on the sale of goods and services. administered by the local tax authorities Registered businesses charge output sales tax on sales and suffer input sales tax on purchases. Administration of sales tax If output sales tax exceeds input sales tax, the business pays the difference in tax to the authorities. If output sales tax is less than input sales tax in a period, the tax authorities will refund the difference to the business. Registered sales tax vendor • A sales tax registered trader must carry out the following tasks. Charge sales tax on the goods and services sold at the rate prescribed by the Government (output sales tax) Pay sales tax on goods and services purchased from other businesses (input sales tax). Pay to the tax authorities the difference between the sales tax collected on sales and the sales tax paid to suppliers for purchases. Payments are made at prescribed intervals. IRRECOVERABLE SALES TAX Where sales tax is irrecoverable it must be regarded as part of the cost of the items purchased and included in the statement of profit or loss charge or in the statement of financial position as appropriate. Sales tax is irrecoverable in the following circumstances; Purchase of luxury goods If the vendor is not registered for sales tax CALCULATION OF SALES TAX Prices are quoted as gross or net of sales tax. The gross amount of a sale or purchase is the amount inclusive of sales tax. The net amount of a sale or purchase is the amount exclusive of sales tax. Sales tax = gross amount*tax rate/(100+tax rate) or net amount * tax rate. Accounting for sales tax Sales tax charged on sales is collected by the business on behalf of the tax authorities. It does not form part of the revenue of the business. accounting entries to record the sale is as follows;
If the input sales tax is irrecoverable, the cost of purchases must include the tax, Sales tax is not charged on exempt goods (on needs) Payable/receivable for sales tax
An outstanding payable for sales tax will
appear as a current liability in the statement of financial position. Amount refundable will appear as a current asset. SALES TAX CONTROL ACCOUNT DEBIT SIDE CREDIT SIDE Payables-input sales tax) x Receivables-output tax X Cash/Bank x Cash (output sales tax x EXAMPLES 1. The following information relates to Eva Co's sales tax for the month of March 20X3: $ Sales (including sales tax) 109,250 Purchases (net of sales tax) 64,000 Sales tax is charged at a flat rate of 15%. Eva Co's sales tax account showed an opening credit balance of $4,540 at the beginning of the month and a closing debit balance of $2,720 at the end of the month. What was the total sales tax paid to regulatory authorities during the month of March 20X3? A $6,470.00 B $11,910.00 C $14,047.50 D 13,162.17 2. Alana is not registered for sales tax purposes. She has recently received an invoice for goods for resale which cost $500 before sales tax, which is levied at 15%. The total value was therefore $575. What is the correct entry to be made in Alana’s general ledger in respect of the invoice? A Dr Purchases $500, Dr Sales tax $75, Cr Payables $575 B Dr Purchases $575, Cr Sales tax $75, Cr Payables $500 C Dr Purchases $500, Cr Payables $500 D Dr Purchases $575, Cr Payables $575
$ 3. Sales (including sales tax) 140,000* Purchases (net of sales tax) 65,000 Sales tax is charged at a flat rate of 20%. Lauren Co's sales tax account had a zero balance at the beginning of the month and at the end of the month. • Lauren Co's sales for the month of $140,000 included $20,000 of sales exempt from sales tax. What was the total sales tax paid to regulatory authorities at the end of May 20X4 (to the nearest $)? • A $7,000 • B $20,000 • C $23,333 • D $13,000 4. Sales (including sales tax) amounted to $27,612.50, and purchases (excluding sales tax) amounted to $18,000. What is the balance on the sales tax account, assuming all items are subject to sales tax at 17.5%? A $962.50 debit B $962.50 credit C $1,682.10 debit D $1,682.10 credit
5. Which of the following correctly describe the entry in the sales account for a sale for a sales tax registered trader? A Credited with the total of sales made, including sales tax B Credited with the total of sales made, excluding sales tax C Debited with the total of sales made, including sales tax D Debited with the total of sales made, excluding sales tax
6. Trade receivables and payables in the financial statements of a sales tax registered trader will appear as described by which of the following? A Inclusive of sales tax in the statement of financial position B Exclusive of sales tax in the statement of financial position C The sales tax is deducted and added to the sales tax account in the statement of financial position D Sales tax does not appear in the statement of financial position because the business simply acts as a collector on behalf of the tax authorities
