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

Author:
Harold Averkamp, CPA, MBA

## Sales Tax Calculation

To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items that are subject to sales tax) by “1 + the sales tax rate”. In other words, if the sales tax rate is 6%, divide the sales taxable receipts by 1.06. If the sales tax rate is 7.25%, divide the sales taxable receipts by 1.0725.

## Example of the Sales Tax Calculation

As an example, assume that all of the items in a vending machine are subject to a sales tax of 7%. In the most recent month the vending machine receipts were \$481.50. Hence, \$481.50 includes the amounts received for the sales of products and the sales tax on these products. The use of algebra allows us to calculate how much of the \$481.50 is the true sales amount and how much is the sales tax on those products:

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 this as S + 0.07S = 1.07S = \$481.50. We solve for S by dividing \$481.50 by 1.07. The result is that the true product sales amounted to \$450. The 7% of sales tax on the true sales is \$31.50 (\$450 X 0.07). Now let’s make sure this adds up: \$450 of sales of product + \$31.50 of sales tax = \$481.50, which was the total amount of the vending machine receipts.

## Additional Example of the Sales Tax Calculation

Now let’s assume that total amount of a company’s receipts including a 7% sales tax is \$32,100. The true sales will be S, and the sales tax will be 0.07S. Therefore, S + 0.07S = 1.07S = \$32,100. The true sales, S, 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. In general journal form the accounting entry to record this information is: debit Cash \$32,100; credit Sales \$30,000; credit Sales Tax Payable \$2,100.

Join PRO to Track Progress

• Perform better at your job
• Get hired for a new position

#### Earn Our Certificates of Achievement

• Debits and Credits
• Financial Statements
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Working Capital and Liquidity
• Financial Ratios
• Bank Reconciliation
• Accounts Receivable and Bad Debts Expense
• Payroll Accounting

#### PRO Plus

Features
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Bookkeeping Study Guide
Managerial Study Guide
All PDF Files
Progress Tracking
Certificate - Debits and Credits
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Accounts Receivable and Bad Debts Expense
Certificate - Payroll Accounting