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

Payment of output tax on sales to the tax authority  

If an entity charges more output tax on its sales than it suffers on its purchases, 

there will be a credit balance (liability) on the sales tax account. This must be 

paid to the tax authority and accounted for as follows: 

Dr Sales tax (amount paid) 

Cr Cash (amount paid) 

Receipt of input tax on purchases from the tax authority  

If an entity suffers more input tax on its purchases than it charges on its sales, 

there will be a debit balance (asset) on the sales tax account. This will be 

refunded by the tax authority and accounted for as follows: 

Dr Cash received 

Cr Sales tax 

This may arise in a given sales tax return period if, for example, an entity 

purchased a significant amount of plant and equipment on which sales tax had 

been charged by the supplier. If the entity had suffered more input tax on 

purchases than it had charged output tax on its own sales, then it would receive 

a refund of sales tax suffered from the tax authority.