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Journal Entry - Alternative Ways of Recording Sales Tax

In providing accounting services to small businesses, you encounter the following situations pertaining to cash sales.

Grainger Company rings up sales and sales taxes separately on its cash register. On April 10 the register totals are sales $25,000 and sales taxes $1,750.
Darby Company does not segregate sales and sales taxes. Its register total for April 15 is $13,780, which includes a 6% sales tax.
Prepare the entries to record the sales transactions and related taxes for (a) Grainger Company and (b) Darby Company. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

A) April 10 ~ Grainger Company
Account Description / Debit / Credit

B) April 15 ~ Darby Company
Account Description / Debit / Credit

Solution Preview

Sales taxes are generally collected by retailers and remitted to a state and/or local government; therefore, the sales taxes collected are a liability of the retailer collecting them. Of course, the sales proceeds are revenues. The Grainger Company sales and related sales tax collected are segregated at the register, so the journal entry is straight-forward:

April 10 Cash 26,750
Sales revenue ...

Solution Summary

This solution illustrates how to record sales tax collected under each alternative.

$2.19