Which of the following accounts is credited by the seller when sales tax is collected on retail sales?

• A. Cash
• B. Accounts Receivable
• C. Sales Revenue
• D. Sales Tax Payable

Answer: (D)

Verified step by step guidance

1. Understand the concept of sales tax: Sales tax is a liability for the seller because it represents an amount collected from customers that must be remitted to the government. It is not revenue for the seller.
2. Identify the accounts involved: When sales tax is collected, the seller typically debits either Cash or Accounts Receivable (depending on whether the payment is immediate or deferred) and credits Sales Tax Payable, which is a liability account.
3. Analyze the transaction: The seller collects the sales tax from the customer at the point of sale. This creates an obligation to pay the collected tax to the government, which is why the Sales Tax Payable account is credited.
4. Understand why Sales Tax Payable is credited: Crediting Sales Tax Payable increases the liability on the seller's books, reflecting the obligation to remit the collected tax to the government.
5. Review the correct answer: Based on the explanation, the correct account to credit when sales tax is collected is 'Sales Tax Payable,' as it represents the liability for the seller.