Aron Govil explains How to Calculate and Record Sales Tax in a Cash Basis Accounting System?

Sales Tax is one of the most important financial factors in determining profits and losses for business owners explains Aron Govil. But, if you are using a cash basis accounting system, how do you record sales tax?

Here’s how to calculate and record sales tax in your cash basis accounting system:

When considering accountants that handle small business taxation, many people think about bookkeeping for their business. But, the role of an accountant in your business is much more than just keeping books. They are trained to provide you with financial reports, projections, and insights that can help you make better decisions about your small business. This may come as something of a surprise because many accountants are often thought of as bean counters.

The role of an accountant in your business is much more than just keeping books.

  • When it comes to sales tax, there are two ways to account for it – accrual basis and cash basis. The accrual basis records sales tax as income when the customer is invoiced, while the cash basis records sales tax as income when the cash is collected. So, which one should you use if you’re using a cash basis accounting system?
  • Well, it depends on how your business is set up. If you are a retailer and sell products to customers, then you would use the accrual basis because you are invoicing them for the product at the time of sale. However, if you are a service business and don’t sell products, then you would use the cash basis because you are not invoicing the customer for the services provided.

When it comes to sales tax, there are two ways to account for it – accrual basis and cash basis.

  • The accrual basis records sales tax as income when the customer is invoiced, while the cash basis records sales tax as income when the cash is collected. So, which one should you use if you’re using a cash basis accounting system?
  • If you are a retailer and sell products to customers, then you would use the accrual basis because you are invoicing them the product at the time of sale. However, if you are a service business and don’t sell products, then you would use the cash basis because you are not invoicing the customer for the services provided says Aron Govil.

Now that we’ve covered how to account for sales tax in a cash basis accounting system, let’s take a look at how to calculate it.

  • To calculate sales tax, simply multiply the taxable amount by the applicable tax rate. For example, if your taxable amount is $100 and your state’s tax rate is 7%. Then your sales tax would be $7. To make things easier, many states have a Sales Tax Calculator on their website In order to keep track of your sales tax payments. You will need to create a Sales Tax Payable account in your accounting software. This is where you will record the total amount of sales tax that you owe each month. You can then make payments against the Sales Tax Payable amount each month explains Aron Govil.

To keep track of your sales tax payments, you will need to create a Sales Tax Payable account in your accounting software. This is where you will record the total amount of sales tax that you owe each month. You can then make payments against the Sales Tax Payable amount each month.

You already know how to calculate and record sales tax in your cash basis accounting system. But there’s more to learn about this topic. Download our eBook, “The Essentials of Cash Basis Accounting” for more tips on how to do it correctly!

Conclusion:

As an accountant, you are often thought of as a bean counter. The role of an accountant in your business is much more than just keeping books says Aron Govil. Sales tax is one area where accountants can really make a difference for small businesses. When it comes to sales tax, there are two ways to account for it – accrual basis and cash basis.

The accrual basis records sales tax as income when the customer is invoiced. While the cash basis records sales tax as income when the cash is collected. If you are a retailer and sell products to customers. Then you would use the accrual basis because you are invoicing them at the time of sale. However, if you are a service business and don’t sell products, then you would use cash basis. Because you are not invoicing the customer for the services provided. To calculate sales tax, simply multiply the taxable amount by the applicable tax rate.