in accounting, Am I doing the right thing?

Question

I don't charge my customers for sales tax (easier for them to accept fixed prices),so I give them round packages (e.g. $800) and I invoice them for 850.40 (package + sales tax), then, I give them a credit against the "sales discount" G/L account for the 50.40, that way I account for the sales tax, but eat it out of my pocket.
I noticed that my acctn. software puts the "sales discount" credit as an income G/L account. It does come off the balance, but I am not sure I am screwing up my income statement. I don';t really understand how a sales discount acct. can be considered income.
Am I doing the right thing? or is there a better way to pay sales tax, and still give round price packages?
Is sales discount the right account to post to, to offset the sales tax so I can pay it instead of the customer?
This probably sounds too confusing, but I really need help. Any accounting guru out there?
Thanks!!!!

In resposne to goldenboyblue's.

That is my concern, that I am deducting the 50.40 from sales, thus my tax liability is not accurate. I am just really confused. I want to be able to eat the sales tax while having round priced packages... yet, I do work in several jurisdictions with different rates.
What do you suggest (in lame terms) I post against in order to sell for $800, and eat the 50.40. In other words, What account would you use to "eat" the 50.40 against without affecting your tax liability?

Thanks SOOO much!!

Answer 1

I used to do that with my trash service, quote the price at a fixed amount, and adjust out the sales tax to match it. You have the right idea, but you just need to put the sales tax amount per sale, whatever that works out to, into the system as sales tax and eliminate the "discount" thing altogether.

(The problem with counting this as a discount is, the tax treatment of discounts is different, and it will be a headache and a half if you ever do offer discounts because then you'd end up sorting actual discounts from sales taxes... ugh!! Not good.)

So, for example, if you had an $800 sale, and say, $49.54 of that amount was sales tax, then you'd invoice them for $750.46 and show the sales tax as $49.50, with the total as $800. Then in your general ledger, the sale would look like:

DR Cash $800.00 (or Accounts Receivable if it's a charge)
CR Sales $750.46
CR Sales Tax Payable $49.50

That way, everything is spelled out as what it actually is, and the transactions all balance.

Answer 2

you should be debiting cash lets say for 850.40 crediting sales 800 and crediting taxes payable for 50.40.

when you pay the taxes, you would then debit taxes payables (clearing out the payable account) and crediting cash.

yes sales discount is part of the income statement but its a reduction of sales. ( it helps for ratio analysis purposes for those examining an income statement since it makes sales look higher before the discount)
You didn't mention: if you are using sales discount how are you setting up the tax liability ?

Answer 3

Assuming that you do work in only one jurisdiction, you could do it this way:

Set your price at $X.XX /(1+.063).

In the above example, you would charge $752.59 + 6.3% tax for a total of $800.00. This way you only "eat" $47.41. A minor difference from the $50.40 but it would add up over time an probably be a bit cleaner for your accountant or sales tax auditor.

If you do work in multiple jursidictions, this way would be a bit more complicated and you would have to adjust your pricing based on the jurisdiction but it would still work.