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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Sales tax transactions

Journalize the entries to record the following selected transactions:

  1. a. Sold $62,800 of merchandise on account, subject to a sales tax of 5%. The cost of the merchandise sold was $37,500.
  2. b. Paid $39,650 to the state sales tax department for taxes collected.

To determine

Sales is an activity of selling the merchandise inventory of a business.

To Describe: The sales tax transactions.

Explanation

(a)

Record the sale of merchandise inventory on account.

Date Accounts and Explanation Debit ($) Credit ($)
  Accounts Receivable 65,940 (2)  
             Sales Revenue   62,800
             Sales Tax Payable   3,140 (1)
  (To record the sale of inventory on account with the sales tax)    

Table (1)

Working Note:

Calculate the amount of sales tax payable.

Sales revenue = $62,800

Sales tax percentage = 5%

Sales tax payable = Sales revenue × Sales tax percentage=$62,800×5%=$3,140 (1)

Calculate the amount of accounts receivable.

Sales revenue = $62,800

Sales tax payable = $3,140

Accounts receivable = Sales revenue +Sales tax payable=$62,800+$3,140=$65,940 (2)

Explanation

  • Accounts Receivable is an asset and it is increased by $65,940. Therefore, debit accounts receivable with $65,940

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