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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Sales Taxes During August, Hill Sales Company had these summary transactions:

  1. 1. cash sales of $210,000, subject to sales taxes of 6%
  2. 2. sales on account of $260,000, subject to sales taxes of 6%
  3. 3. paid the sales taxes to the state

Required:

Prepare journal entries to record the preceding transactions.

To determine

Prepare the necessary entries to record the given transaction.

Explanation

Sales tax payable

The Company collects the tax from the customer when the sale is made in cash or an account, and periodically deposits the collections to the state’s department of revenue. Many states are implementing sales taxes on purchases made on the internet. Sales taxes are computed as percentage of the sales price.

Prepare journal entry to record the cash sales.

DateAccount Titles and explanationDebit ($)Credit ($)
Cash 222,600 
      Sales 210,000
      Sales taxes  payable [$210,000×6%s]  12,600
 (To record the cash sales)  

Table (1)

  • Cash is an asset and there is an increase in the value of an asset. Hence, debit the cash by $222,600.
  • Sales are component of stockholder’s equity and there is an increase in the value revenue. Hence, credit the sales by $210,000.
  • Sales tax payable is a liability and is an increase in the value of liability. Hence, credit the sales tax payable by $12,600.

Prepare journal entry to record the sales on the account of $260,000

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