When a company collects sales taxes, it debits Cash, and credits both Sales Revenue and Sales Tax Payable.Group startsTrue or False

Analyzing the Statement

1. Understanding Sales Tax Collection

   • When a company makes a sale, it collects sales tax from customers in addition to the sales price of goods/services sold.

2. Journal Entry Components

   • Debit Cash: This represents the total amount of cash received, which includes the sales price and the sales tax.
   • Credit Sales Revenue: This part reflects the actual earnings from the sale of goods/services before tax.
   • Credit Sales Tax Payable: This is the liability that the company incurs due to the obligation to remit the collected sales tax to the government.

Verification of the Statement

Given the components of the journal entry, the statement "When a company collects sales taxes, it debits Cash, and credits both Sales Revenue and Sales Tax Payable" is:

• True

Summary

The company correctly debits Cash for the total received and credits Sales Revenue for the sales amount and Sales Tax Payable for the tax collected, ensuring the accounting records accurately reflect the transaction.