Even if you aren’t going back to school this month I’m guessing you may have taken advantage of the ‘sales tax free’ weekend. This got me thinking…sales tax is a fun bookkeeping topic! Are you recording it correctly?
I have previously seen businesses record this as ‘sales tax expense’ on their books. Sales tax is money you collect for the government to send them. This is not revenue for you when you collect it and it is not an expense when you remit it. What is it? It’s a liability on your balance sheet. When you make a sale, the amount of sales tax you collect increases in your bank account as well as your “sales tax payable” liability account. It’s not part of revenue and doesn’t show up on your profit and loss. Every time you make a sale you keep increasing that liability through the month.
Then comes payment time. When you pay sales tax, the money comes out of your bank account and also decreases that “sales tax payable” account when you write a check, make a payment online, or send in the voucher. That should make the liability account net to zero! You increase it through the month then decrease when you make the payment.
I love looking at a sales tax payable account and it nets to zero every month- it makes me so happy! Your point of sale system is your best friend in this situation. It will do the hard work for you making the calculation with each sale. If your bookkeeping software is also your point of sale system then you can run everything through it. You can view the sales tax liability report and record the tax liability all in one place. If you use a separate point of sale system, you just need to make sure everything in your bookkeeping software ties to the point of sale.
Finally, don’t forget to go online and actually file the return and make the payment. MyDORWAY is actually pretty user friendly compared to other some other states-YES SC!
Jordan Ilderton, CPA