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A business collects 8% sales tax on a $1,000 cash sale. What amount is recorded in Sales Tax Payable for this sale?

A$1,080
B$1,000
C$80
D$108
Answer & Solution
Correct answer: C. $80
1. Sales tax is computed on the selling price: \$1{,}000 \times 8\% = \$80. 2. Sales Tax Payable, a liability, is credited for $80. 3. Cash is debited for the total collected, $1,080 (1,000 + 80), and Sales is credited for $1,000. 4. The amount in Sales Tax Payable is $80. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.1 "Sales Tax", p.209_
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On a classified statement of financial position, where is unearned revenue (for example, uWhen a business remits the balance of its Sales Tax Payable account to the tax authority, A retailer sells goods for $1,000 on account and collects 8% sales tax from the customer.