Western Governors University (WGU) ACCT2313 D102 Financial Accounting Pre-assessment Practice Test

Question: 1 / 400

What is the correct treatment of sales tax collected as part of a retail sale?

Recorded as part of revenue

Recorded as a liability until remitted

The correct treatment of sales tax collected during a retail sale is to record it as a liability until it is remitted to the appropriate tax authority. When a retailer collects sales tax from customers, that amount does not belong to the retailer; rather, it is collected on behalf of the government. Therefore, until the retailer pays the sales tax to the government, it holds the tax amount as a liability on its balance sheet. This reflects the obligation to remit those funds.

Recording sales tax as part of revenue would inaccurately inflate the sales revenue since it does not represent income earned by the business. Ignoring the sales tax in financial statements would fail to recognize the obligation associated with the collected amount. Recording it as an expense would incorrectly reflect the sales tax as a cost to the business, which does not accurately represent how sales tax functions in the context of a retail transaction.

Get further explanation with Examzify DeepDiveBeta

Ignored in financial statements

Recorded as an expense

Next Question

Report this question

Download Western Governors University (WGU) ACCT2313 D102 Financial Accounting Pre-assessment Practice Test PDF Study Guide
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy