Now let's learn about sales taxes. So sales taxes, they're based on a percentage of the sales price and the customer is going to be paying for this, right? Maybe you live in a state like New Hampshire where you have the luxury of seeing a price tag of $1 and you actually pay $1. Well, most of us don't have that luxury and you're probably gonna have to learn this anyways. So let's go ahead and see how we account for our sales taxes. Alright? So like I said, these sales taxes, they're going to be based on a percentage of revenue, right? There's gonna be the revenue that the company earns and there's gonna be some percentage given to you in the problem that you're gonna have to calculate the sales tax. And remember it's the customer who's paying for the sales tax. Think about when you go to the store and you see something that says it's $5 Well, you take it to the cash register, you don't pay $5 you pay like $5.30 or something, right? You pay a little extra and that's the sales tax. So it's the customer that's paying the sales tax, but it's the company that's collecting the sales tax and then remitting it to the government, sending it to the government, right? So when you think about it, this sales tax that the customer is paying its extra cash coming into the company, but it's not revenue, right? These sales taxes are not revenue to the company because they're just collecting it and then giving it to the government? It's going to be revenue for the government, but not for the company. So let's go ahead and see how we deal with these sales taxes in this example, right here, the state of Oakland rasca imposes an 8% sales tax on all sales. So there you go. This is always gonna happen. They're gonna give you what the sales tax percentages. And we're gonna use that with our revenue to calculate our sales taxes during the month of september Okla. Brassica Riding Company made 240,000 in sales sales of 240,000. Okay, So when we didn't have sales tax, we usually had an entry, let's say it was all received in cash. There was no accounts receivable. Well, we would have debited cash, right? Because we received cash and we would have credited revenue. Right? It's still gonna be similar, except we're collecting a little more cash now, Right? It's not just the revenue that we're collecting in cash, we're also collecting the sales tax amount. So, let's see how this works. Let's see first how much the sales tax is. Right? So the sales tax, Well, that's gonna be the amount of sales, 240,000 times the 8% 0.8 in in sales taxes, right? 8% of all sales. So 240,000 times point oh eight. Well, that's gonna come out to 19,200 right, 19,200 Is the amount extra that we collected to remit to the government. Cool. So how much cash did we actually collect The cash is actually collected? Well, it's a 240,000 in sales plus the 19,200 in taxes. So the total cash is gonna be the $259,200, right? That's a total of our revenue plus the sales tax we collected. So that's what we would have in our journal entry. That's the amount of cash that actually came in. So we would debit cash for 259,000 and $200. So that would be our debit and then we'd have our credit to revenue for the amount of revenue we had. Right, it wouldn't be the whole 259,000 uh 259,200. Because that's not all revenue. We would only have revenue of 240,000 just like before. So what's gonna be the rest of our credit here? Well, we have this money that's not ours. We owe this money to the government, right? We collected this money and we're gonna have to pay it to the government. So we have a liability and we're gonna have a liability, sales taxes payable sales tax payable. Okay, so now we have this liability To pay this 19,200 to the government and eventually when we pay the government. So I'll put over here eventually oh we actually do this below. Perfect I'm getting ahead of myself. So this is the entry we would make when we collect the money right every time we collect we're gonna increase increase our liability to the government and we're gonna have our revenue and the cash we collected. So we would have these journal entries and we would see that we would have our cash right our cash is going up to 59 200. For all the cash we collected our liabilities for the sales tax payable. I'm gonna put S. T. For sales tax their the liabilities are going up 19 200 the revenue increases our equity right this is gonna go through our retained earnings And this is going up 240,000. So this stays balanced here. Now eventually we're gonna have to pay that money to the government and that's what I almost got ahead of myself here. So this is our second entry. So eventually when we pay the government O. R. C. Remitted the sales tax collected to the government at the end of the month. So what does this do? It gets rid of the liability right we were liable we had this liability to pay the government the 19,200 now we finally did it. So this is what we're gonna do. We're gonna get rid of the liability with a debit sales tax payable gets rid of the the liability in the full amount because we paid them the full amount 19,200. And how did we pay them with that extra cash we collected? Right? That extra cash 19,200. So you can imagine after this journal entry, what we're just left with our revenue that we earned the cash from the revenue that we earned right the 240,000 is left over. So our cash here is going down 19,200 and the liability, the sales tax payable that's going away as well, 19,200. So the liability is off of our books and that extra cash we collected is gone as well. Alright, so this is it's not so complicated to deal with sales taxes. You just have to remember that there's the revenue portion and then we collect a little extra which is the sales tax, which is a liability until we pay it to the government. Okay, so let's pause here and we'll continue with another little tidbit about sales tax in the next video