Sales tax basics
Objective: Record sales tax collected on sales.
Recommended first: Your first journal entries
Where sales tax applies, the seller collects it from the customer and owes it to the tax authority. It is a liability, not revenue.
Sales tax is collected on behalf of a government, so it never belongs to the business. Recording it as a liability at the time of sale keeps revenue accurate and makes the remittance a simple payment. The rate, what is taxable, and filing frequency vary by jurisdiction; exercises state fictional rules.
Check your work
- Is the tax computed at the stated rate and rounding rule?
- Is revenue recorded excluding tax?
- Is tax credited to Sales Tax Payable?
When a customer is exempt, keep the exemption documentation the exercise describes.
$500 repair + 6% fictional tax ($30).
| Account | Debit | Credit |
|---|---|---|
| Cash | $530.00 | |
| Service Revenue | $500.00 | |
| Sales Tax Payable | $30.00 |
Common mistakes
✗ Including tax in revenue.
✓ Credit Sales Tax Payable.
Guided practice
Use hints freely here.
Item 1 of 1
Cash sale with sales tax
On Mar 12, 2026, Two Wheels Bike Repair sells $845.00 of repair services in the fictional state of Westmara, which charges 6% sales tax on repairs. The customer pays $895.70 in cash.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 2
Invoice including sales tax
On Mar 7, 2026, Two Wheels Bike Repair invoices a cycling club $370.00 for fleet servicing plus 5% sales tax (fictional Westmara county rate), payable in 30 days.
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Key terms
- Sales tax
- Tax collected from customers on taxable sales.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.