Exploring sales tax high-level cycles and entries

In this section, we will explore the sales tax business process, and the generated financial entries in tax payable and tax receivables.

Sales tax business process

Sales tax is a tax paid to the government for the trading of some goods and services. As shown in the following diagram, the sales tax receivable is generated from vendor transactions, whether from a purchase order invoice or service invoice. The sales tax payable is generated from customer transactions, whether from a sales order invoice or a service invoice. Then, the net of the tax receivable and tax payable is settled to be paid to the sales tax authority: 

The generated financial entries in the sales tax cycle are as follows: 

• Tax receivable—accounts payable: The financial entries generated in the course of posting the vendor invoice transaction are debiting expenses, sales tax, and crediting accounts payable.

• Tax payable—accounts receivable: The financial entries generated in...