Sales Tax
Far and Wide Broadband provides Internet connection services to customers living in remote areas. During February 2020, it billed a customer a total of $295,000 before taxes. Weston also must pay the following taxes on these charges:
a. State of Kansas sales tax of 6%
b. Federal excise tax of 0.2%
c. State of Kansas use tax of 0.4%
Required:
Assuming Far and Wide collects these taxes from the customer, what journal entry would Far and Wide make when the customers pay their bills?
Concept introduction:
Liabilities:
Liabilities are the obligation of the business or amount payable by the business. Liabilities can current or long term. Current liabilities are liabilities payable within the short term or business cycle of the company, for example Accounts payable for purchases and utilities payable. Long term liabilities are liabilities payable in a long period/ years, for example long term loan.
To prepare:
The journal entry at the time of making payment of taxes payable.
The journal entry at the time of making payment of taxes payable is explained as follows:
Account Titles | Debit | Credit |
State of Kansas Sales tax Payable (295000*6%) | ... |
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