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Under which of the following is sales tax collected from guests recorded? a. revenue b. expense c. current liability d. curre
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Answer #1

Option C - Current Liability.

Sales tax collected from guests is recorded as current liability.

Sales taxes that apply to accommodations generally for lodging services provided to guests (being customers of lodging services in hotels, guest houses etc.) are collected from guests and recorded as current liability until it is remitted to government. Service provider/Merchant is merely an agent that will collect sales tax from its customers and pay to the credit of government.

To record Sales tax received from customers and recognizing sales/service revenue following entry is passed:

Transaction

Accounts Title & Explanation

Debit

Credit

1

Cash

$ xxx

Sales/Service Revenue

$ xxx

Sales Tax payable

$ xxx

Option A - Sales tax collected is not revenue as it is not an income earned from our business activity of sales of goods/services.

Option B - it is not even an expense. Expenses are costs incurred to earn revenue. It is collected from customer and paid to the government.

Option D - Current Assets are the assets(resources owned by organization) that are expected to be converted into cash within a year. However sales tax collected from guests needs to be paid to government within a year. So it is not a current asset.

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