When the seller collects sales taxes from the customer at the time of sale, the sales taxes are reported as:

• A. a liability on the balance sheet
• B. owner's equity
• C. revenue on the income statement
• D. an expense on the income statement

Answer: (A)

Verified step by step guidance

1. Understand the nature of sales taxes: Sales taxes collected by the seller are not revenue or income for the seller. Instead, they are amounts collected on behalf of the government and must be remitted to the appropriate tax authority.
2. Identify the accounting treatment: Since the seller is obligated to pay the collected sales taxes to the government, these amounts are considered a liability until they are paid. A liability represents an obligation or debt owed by the business.
3. Determine the correct financial statement: Liabilities are reported on the balance sheet, which shows the financial position of the company, including its assets, liabilities, and owner's equity.
4. Clarify why other options are incorrect: Sales taxes are not part of owner's equity because they do not belong to the business. They are not revenue because they are not earned by the business, and they are not an expense because they do not represent a cost incurred by the business.
5. Conclude that sales taxes collected at the time of sale are reported as a liability on the balance sheet, reflecting the seller's obligation to remit these taxes to the government.