Accounting: Does?

Question

Cash dividends decrease (if paid out) Net Income b/c it decrease SH equity?
Also one entry tells me to: Record cash sales tax of 100 and 6 sales tax, which i can do but the next enty tells me to: At year end, remit the sales tax to the state? can anyone help me understand that?

Answer 1

Dividends paid to shareholders do NOT reduce income or income taxes of the company. They represent a distribution of income to the shareholders.

Sales taxes collected are considered public trust funds, just like taxes withheld from your employees' pay. They go on your balance sheet as a liability until paid to the state. They are neither income nor asset of your company as they never belong to you, they are only in your temporary custody for the benefit of the government. When you make a taxable sale, you debit cash and credit sales taxes payable for the amount of the tax collected. When you pay the taxes to the state, you debit sales taxes payable and credit cash.