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When a business remits the balance of its Sales Tax Payable account to the tax authority, how is the payment treated in the accounts?
AAs a debit to Sales Tax Payable and a credit to Cash
BAs a debit to Sales Tax Expense and a credit to Cash
CAs a debit to Cash and a credit to Sales
DAs a debit to Sales and a credit to Cash
Answer & Solution
Correct answer: A. As a debit to Sales Tax Payable and a credit to Cash
1. Sales tax is collected from customers and held as a liability, not as a business expense.
2. Paying it reduces the liability: debit Sales Tax Payable.
3. Cash decreases, so Cash is credited.
4. No expense account is used, since the money belongs to customers, not the business. Hence debit Sales Tax Payable, credit Cash.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.1 "Sales Tax", p.209_