   # How do I calculate the amount of sales tax that is included in total receipts?

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How do I calculate the amount of sales tax that is included in total receipts? posted Jun 22, 2017
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To calculate the sales tax that is included in a company's receipts from items subject to sales tax, divide the receipts by 1 + the sales tax rate. For example, if the sales tax rate is 6%, divide the total amount of receipts by 1.06. If the sales tax rate is 7.25%, divide the total receipts by 1.0725.

Let's illustrate this technique by assuming that a vending machine contains only items that are subject to a sales tax of 7%. For a recent month the vending machine receipts were \$481.50. This \$481.50 includes the amounts received for sales of product and for the sales tax on these products. A little algebra will allow us to calculate how much of the \$481.50 is the true sales amount and how much is the sales tax on the products sold.

Let S = the true sales of products (excluding the sales tax), and let 0.07S = the sales tax on the true sales. Since the true sales + the sales tax = \$481.50, we can state that S + 0.07S = \$481.50. Next we combine the terms and have 1.07S = \$481.50. We solve for S by dividing \$481.50 by 1.07. Hence the amount of true sales is \$450. The 7% of sales tax on the true sales is \$31.50 (\$450 X 0.07). Now let's prove these amounts: \$450 of sales + \$31.50 of sales tax = \$481.50, the total amount of receipts from the vending machine.

Let's try another example. If the total amount of receipts including a 7% sales tax is \$32,100, the true sales amount will be \$30,000 (\$32,100 divided by 1.07). The sales tax on the true sales will be 0.07 X \$30,000 = \$2,100. Our proof is \$30,000 of sales + \$2,100 of sales tax = \$32,100. The accounting entry in general journal form it will be: debit Cash \$32,100; credit Sales \$30,000; credit Sales Tax Payable \$2,100. answer Jun 23, 2017
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