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

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

Answer: (C)

Verified step by step guidance

1. Understand the concept of sales tax: Sales tax is a liability for the seller, as it represents the amount collected from customers that must be remitted to the government.
2. Identify the nature of the transaction: When a seller collects sales tax on retail sales, they are acting as an intermediary, holding the tax temporarily before paying it to the government.
3. Determine the correct account to credit: In accounting, liabilities are credited when they increase. Since sales tax collected is a liability, the 'Sales Tax Payable' account is credited.
4. Analyze the other accounts listed: 'Sales Revenue' is credited for the revenue earned, 'Cash' is debited for the cash received, and 'Accounts Receivable' is debited if the sale is on credit. None of these accounts represent the liability for sales tax.
5. Conclude that 'Sales Tax Payable' is the correct account to credit, as it reflects the obligation to remit the collected tax to the government.