Acca financial Accounting (FA) Study Text ac ca (FA)

  What ledger entries are required to record the payment by 

George to Herbie, along with calculation of the net cost of the 

goods purchased? 

(b)

  What accounting entries are required by George to record the 

receipt from Iris?

 

 

 

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Chapter 5 

KAPLAN PUBLISHING

 

79 

4 Sales 

tax 

 

5 

Principles of sales tax 

Sales tax is levied on the final consumer of a product. Unless they are the final 

consumer of the product or service then an entity that is registered to account 

for sales tax is essentially acting as the collection agent for the relevant tax 

authority. 

Sales tax is charged and paid on purchases (input tax) by suppliers and 

charged and collected on sales (output tax). An entity registered for sales tax 

will effectively pay over the sales tax it has added to its sales and recover the 

sales tax it has paid on its purchases. To this end the entity incurs no sales tax 

expenses and earns no sales tax income. Therefore sales tax is excluded from 

the reported sales and purchases of the entity. 

Periodically the entity will calculate the total amount of sales tax added to sales 

and the total sales tax added to purchases. If output tax (on sales) exceeds 

input tax (on purchases), the entity pays the excess to the tax authority. If input 

tax exceeds output tax, the entity is refunded the excess by the tax authority. 

Sales tax is sometimes referred to as value added tax or goods and services 

tax. Sales tax is charged on most goods and services, although you are not 

expected to have any detailed or specific knowledge of which goods and 

services are subject to sales tax.