Question
Asked Jan 27, 2020
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During December, Rainey Equipment made a $600,000 credit sale. The state sales tax rate is 6% and the local sales tax rate is 1.5%. Prepare the appropriate journal entry.

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Expert Answer

Step 1

Liabilities: Liabilities are the obligations of the business to pay the creditors and others, towards purchasing goods and services on account, and/or other financial benefits received. Liabilities can be short term (current liability) or long-term depending upon the time it is paid-off. While current liabilities are paid within one year, on the other hand, long-term liabilities are paid over one year period.

 

Sales Tax Payable: Sales tax is a tax on the goods and services for the retail sale made by the retailers to the consumers. The tax amount thus collected is due to be paid to the government entities. The retailers collects the tax from the consumers over and above the list price of the product and service they provide, which is computed as a percentage on the amount of sale. This collected sales tax amount is considered as a current liability, since the retailer is supposed to deposit to the government within one year.

Step 2

Journalize the transaction to record the sale i...

Accounting homework question answer, step 2, image 1
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