Sales tax

In this lesson

1. 0:00 Sales tax: definition and overview
2. 1:06 How sales tax processes work
3. 2:22 Sales tax through supply chain example
4. 5:38 Accounting for sales tax on sales and purchases
5. 7:01 Sales tax inclusive versus exclusive
6. 11:57 Worked example: calculating sales tax amount
7. 13:38 Irrecoverable sales tax explained
8. 14:31 Recording sales tax in books of prime entry
9. 15:50 Multiple choice question and analysis

About this lesson

Sales tax is collected by registered traders on their sales (output tax) and paid on their purchases (input tax), with the net amount settled to tax authorities each period. Understanding the mechanics of this system is essential for papers like TX, ATX, and SBR, where you'll need to calculate tax positions, record transactions accurately, and distinguish between sales tax inclusive and exclusive figures. The lesson walks you through the complete supply chain to show how sales tax flows from supplier to manufacturer to retailer to the final customer, who ultimately bears the cost. You'll learn the correct double-entry treatment for sales and purchases: recording income and expenses net of sales tax in your statement of profit and loss, while trade receivables and payables are recorded gross (including the tax). A critical skill covered is identifying whether figures in exam questions are sales tax inclusive or exclusive, then extracting the correct tax and net amounts using the given rate. You'll also explore practical scenarios including how to handle irrecoverable sales tax when a company isn't registered, how to record transactions in the sales day book and purchase day book with analysis columns, and how to determine whether a company owes tax to authorities or is due a refund. Real worked examples and multiple-choice questions reinforce when sales tax is an expense to the end consumer, when it's output versus input tax, and why sales tax is never recorded as company income.

Duration: 17m