# Money that passes through > Three September entries move money that isn't Northwind's to keep: the state's sales tax, the Treasury's withholding and the owners' dividend. Source: https://lopifi.com/learn/recording-the-month/money-that-passes-through Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com) --- **How do you record sales tax collected, payroll withholding and a dividend?** Three September entries move money that isn't Northwind's to keep: the state's sales tax, the Treasury's withholding and the owners' dividend. Three September entries move money that isn't Northwind's to keep. Each teaches the same habit: ask whose money it is before you decide what it is. JE-5's walk-in customer handed over $10,260, but only the $9,500 price is revenue. The other $760 is sales tax, charged on the state's behalf. It's credited to [sales tax payable](https://lopifi.com/md/glossary/sales-tax-payable), a liability that stays on the books until the return is filed and paid. The trade customer on JE-7 paid no tax, because it buys to resell and gave Northwind a [resale certificate](https://lopifi.com/md/glossary/exemption-certificate). Strictly, keeping sales tax out of revenue is a policy election, not a rule. ASC 606 lets a seller exclude all taxes of this kind from the [transaction price](https://lopifi.com/md/glossary/transaction-price) at once, instead of deciding tax by tax whether it collected the money for someone else. Nearly every seller makes the election, and so does Northwind. > “An entity may make an accounting policy election to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes).” © Financial Accounting Foundation. All rights reserved. — [ASC 606-10-32-2A](https://asc.fasb.org/606/tableOfContent), Sales taxes collected may be excluded from the transaction price — a policy election *[Figure: exemption certificate]* Illustrative: a trade sale passing the tax gate on a resale certificate, as JE-7's did. The certificate is what lets Northwind charge no tax and still answer to the state. JE-11 is the same idea inside a payroll. Northwind's staff earned $8,400, and that gross figure is the expense. Only $6,707.40 reached their bank accounts. The other $1,692.60 is their federal income tax and their share of Social Security and Medicare, withheld from their pay and owed to the Treasury. That's a [payroll liability](https://lopifi.com/md/glossary/payroll-liabilities), and tax law is explicit that the money was never the employer's. Writing the entry as expense, liability and cash is bookkeeping mechanics. The obligation underneath is tax law. Northwind's own share of payroll taxes, which *is* its expense, waits for month end in lesson 9. > “The federal income tax and employees’ share of social security and Medicare taxes that you withhold from your employees’ paychecks are part of their wages that you pay to the U.S. Treasury instead of to your employees. Your employees trust that you pay the withheld taxes to the U.S. Treasury by making federal tax deposits. This is the reason that these withheld taxes are called trust fund taxes.” — [IRS Publication 15 (2026), Circular E — Introduction](https://www.irs.gov/publications/p15), Withheld payroll taxes are the government's money, held in trust *[Figure: payroll withholding]* Illustrative, not Northwind's figures: one paycheck with each withholding sliced off for the Treasury. The payroll track works September's payroll in full. JE-14 is money that belongs to the owners. On September 30 the board declares a $500 [Dividend](https://lopifi.com/md/glossary/dividend), to be paid in October. Declaring it creates the obligation, so the liability is recorded that day. The debit goes to a separate dividends account, the usual mechanics, which is closed into retained earnings at year end. For the reason in lesson 2, it never reaches the income statement. Every payroll figure here comes from Northwind's September run. The [Payroll track](https://lopifi.com/md/learn/payroll) works the same payroll from gross to net, and the deposits and returns that settle the liability. ## Where this page's rules come from - [ASC 606-10-32-2A](https://asc.fasb.org/606/tableOfContent) — Sales taxes collected may be excluded from the transaction price — a policy election (codification) - [IRS Publication 15 (2026), Circular E — Introduction](https://www.irs.gov/publications/p15) — Withheld payroll taxes are the government's money, held in trust (tax) - [ASC 505](https://asc.fasb.org/505/tableOfContent) — Equity (codification) ## Read further - https://lopifi.com/md/journal-entries/sales-tax-collected - https://lopifi.com/md/journal-entries/payroll - https://lopifi.com/md/journal-entries/dividends - https://lopifi.com/md/startups/payroll-journal-entries - https://lopifi.com/md/startups/how-sales-tax-is-calculated - **Track:** [Accounting](https://lopifi.com/md/learn/accounting) - **Part of:** [Recording the month](https://lopifi.com/md/learn/recording-the-month) — 8 min - **Terms taught:** [Sales tax payable](https://lopifi.com/md/glossary/sales-tax-payable), [Exemption certificate](https://lopifi.com/md/glossary/exemption-certificate), [Transaction price](https://lopifi.com/md/glossary/transaction-price), [Payroll liabilities](https://lopifi.com/md/glossary/payroll-liabilities), [Dividend](https://lopifi.com/md/glossary/dividend) - **Previous:** [Recording the month](https://lopifi.com/md/learn/recording-the-month) - **Next:** [Posting to the ledger, Accounting · Lesson 6](https://lopifi.com/md/learn/posting-to-the-ledger) - **The course:** https://lopifi.com/md/learn