What is the journal entry for paying the Taxing Authority?

Paying the Taxing Authority involves settling an obligation that a business has accrued labeled as Sales Tax Payable. When a business records the sale of goods or services that are subject to sales tax, it collects the tax from customers and records it as a liability, reflecting an obligation to remit this amount to the government.

In this case, the correct journal entry is to debit Sales Tax Payable. This action reflects the decrease in the liability as the company is now paying off its obligation. In contrast, credits are made to Cash to indicate that cash is being used to settle this payment.

Therefore, the journal entry of debiting Sales Tax Payable and crediting Cash accurately depicts the transaction: the liability decreases because the business is paying what it owes, and cash decreases because the business is spending funds to fulfill this obligation. This aligns with the basic principles of double-entry accounting, where every transaction affects at least two accounts.

In summary, the correct journal entry facilitates the reduction of the liability on the balance sheet while also accurately recording the outflow of cash from the business’s resources.