Recording sales tax discount
Appropriate sales taxes charged on billings post to Sales Tax Payable account as credit.
When go to pay the taxes to the state (these are sales and use tax), the state offers a 2% discount for timely payment and filing. What should the journal entries be? I believe that the 2% discount would be posted as a credit to an income account. How do you account for the 2% reduction in the sales tax payable account? The full amount before discount is posted as a credit to the sales tax payable account. If the discount is not offset in that account then the account would be overstated?
Thanks.
Example:
Total sales tax payable for prior month = $2000.00--credited to Sales Tax Payable, Debit to Accts Receivable
Total 2% discount on above taxes = $40.00
Invoice to pay sales tax due of $1,960.00
DR 2,000 to sales tax payable
CR 40 to miscellaneous income
CR 1,960 to Accts payable
$40 would still be showing due to be paid in sales tax payable account. Is there an entry I am missing to offset the $40 in the sales tax payable that needs to zero that account out?
