Backing Out Sales Tax from Gross Total - Auditor Question

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In summary, backing out sales tax from gross total is a common practice in accounting and finance to accurately reflect the net sales amount received by a company. This is done by multiplying the gross total by the sales tax rate to calculate the sales tax amount to be backed out. It is important for auditing purposes as it provides a clear and accurate representation of net sales and can help identify discrepancies or errors. However, there are exceptions to this process, such as exempt sales or tax-inclusive pricing models. Backing out sales tax from gross total can also affect the company's financial statements, as it can impact revenue, sales figures, and sales tax liability. Therefore, it is important for companies to accurately track and document their sales tax transactions.
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Joanie824
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does anyone know the formula to back out sales tax from a gross total - I am an auditor and I need to back out sales tax ie:
gross sales 50,859.18 - this total includes sales tax at 12.25% - i need the formula to back out the sales tax form the gross sales - ANy one know??
 
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Simply divide by (1+sales tax), or in percentages (100+sales tax%)/100

So 50,859.18 / ((100+12.25)/100) = 50,859.18 / 1.1225 = 45308.85
45308.85 * 0.1225 = 5.550.33
45308.85 + 5.550.33 = 50859.18
 

1. What is the purpose of backing out sales tax from gross total?

Backing out sales tax from gross total is a common practice in accounting and finance to accurately reflect the net sales amount. This process removes the sales tax component from the gross total to show the actual amount received by the company.

2. How do you calculate the sales tax amount to be backed out?

The sales tax amount to be backed out can be calculated by multiplying the gross total by the sales tax rate. For example, if the gross total is $100 and the sales tax rate is 10%, the sales tax amount to be backed out would be $10.

3. Why is it important to back out sales tax from gross total for auditing purposes?

Backing out sales tax from gross total is important for auditing purposes because it provides a clear and accurate representation of the company's net sales amount. This can help auditors identify any discrepancies or errors in the reported sales and ensure compliance with tax laws.

4. Are there any exceptions to backing out sales tax from gross total?

Yes, there are exceptions to backing out sales tax from gross total. This process is typically only done for taxable sales, so if a sale is exempt from sales tax, it would not be included in the calculation. Additionally, if a company uses a tax-inclusive pricing model, where sales tax is already included in the listed price, there would be no need to back out sales tax from gross total.

5. Can backing out sales tax from gross total affect the company's financial statements?

Yes, backing out sales tax from gross total can affect the company's financial statements. This process can impact the reported revenue and sales figures, as well as the amount of sales tax liability. It is important for companies to accurately track and document their sales tax transactions to ensure the accuracy of their financial statements.

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