Sales tax is the tax collected on behalf of tax authorities. It does not influence business position and performance.
Sales tax collected on behalf of tax authorities is called Output Sales Tax.
Sales tax paid on purchases is called Input Sales Tax
Sales Tax Payable is the excess of output sales tax over input sales tax.
Sales tax payable is the current liability recognized at accounting period end in SFP.
Input sales tax that is non-refundable is recognized as expense in profit & loss statement.
Sales and purchase account should show break up sales and purchases made for the amount of sales tax.
Cash account does not need to show break up sales and purchases made for the amount of sales tax.
Sales tax could be payable on both goods for resale or services for use or resale (e.g. web hosting) and non-current assets.
Sales tax rate differs from country to country. In addition, commodity to commodity and service to service within same country.
Please! Check the Rate of Sales Tax or VAT for calculating sales tax. Rate of sales tax should be given in the question.
Sales tax can be collected only by registered suppliers. Registration is compulsory for supplier having certain amount of turnover depending on jurisdiction.
However, supplier can voluntary register for sale tax, to ripe the benefits of sales tax registration, such as conveying signal of large business.