ACCA Financial Accounting (F3) Certification 2025 – 400 Free Practice Questions to Pass the Exam

When a business has higher taxable sales than taxable purchases, the sales tax account typically reflects an overall increase in sales tax collected. Essentially, when goods or services are sold, the business collects sales tax from customers, which is a liability until it is remitted to the tax authority.

If the amount of sales tax collected from the customers (related to sales) exceeds the amount of sales tax paid on purchases, this leads to an increase in the balance of the sales tax account, which would be reflected as a credit balance. This indicates that the business owes this amount to the tax authority because it has collected more in sales tax than it has paid in tax on purchases.

Thus, the correct response regarding the effect on the sales tax account when taxable sales exceed purchases is that the balance is credited, representing the liability that the business has toward the sales tax due to the tax authority.