Final answer:
Sales taxes collected by a retailer are recorded as a liability on the retailer's books because it is money collected on behalf of the government, which the retailer is obligated to remit to the tax authority. The correct option is 2.
Step-by-step explanation:
When a retailer collects sales taxes, they act as an intermediary for the government, holding the collected funds temporarily before remitting them to the relevant tax authority. These taxes are therefore recorded on the retailer's books as a liability, not as revenue, expense, or asset. This is because the money is owed to the government and is not an asset owned by the business, nor is it a revenue earned by them, nor an expense they incur.
Taxes are a crucial part of the government's ability to generate revenue to fund various public services and infrastructure. While sales tax can affect consumer behavior by raising the final cost of goods and services, its primary role regarding businesses is the responsibility of collection and remittance to the government.
The retailer must keep track of the amount of sales tax collected and ensure it is paid to the government in the appropriate timeframe.