FFA or ACCA F3

Chapter 7

Sales Tax
Sales Tax is an indirect tax levied on the sale of goods and services. It is usually administered by the local tax authorities.

How is sales tax collected:

    - The manufacturer hands over to tax authorities
    - Wholesaler hands over to tax authorities
    - Retailer hands over to tax authorities.

There are two types of tax. Such as 1. Output Sales tax and 2. Input Sales Tax.

Output sales tax is known as Sales Tax. and Input tax known as purchase tax.

Purchase tax is recoverable from sales tax. And company should be tax registered.

Irrecoverable sales tax.:

There are some circumstances in which traders are not allowed to reclaim sales tax paid on their inputs. This is referred to as irrecoverable sales tax.

Accounting for sales tax.:

Sales tax charged on sales is collected by the business. If Sales is 600 and tax is 90 then Journal will be

Debit     Cash or Trade Receivable                                 690
Credit    Sales                                                                         600
Credit    Sales Tax control account (Output sales tax)                 90

If input sales tax is recoverable.

Debit  Purchase
Debit  Sales Tax control account (Output sales tax)
Credit  Cash or Payable