1. avatar says

    sir sorry to be asking alot of question

    if the sales tax account show an opening credit balance of 4540 at the beginning of the month and a closing debit balance 2720 at the end of the month do we net it off

    • Profile photo of John Moffat says


      An opening credit balance at the start of the month means that they started the month owing money to the state.

      During the month they will have collect tax (meaning more owing to the state) and will have suffered tax (meaning less owing to the state).

      The balance at the end of the month is the net of these figures and is the amount owing to or from the state at the end of the month.

      • avatar says

        so sir if i am correct when drawing up this month t account is it ok for me to put it the debit 2720 and credit 4540 respectively and then continue with the other transaction and then balance it off

      • Profile photo of John Moffat says

        The balance at the end of the period could be on either side depending on whether they owed money to the state or whether the state owed money to them. The balance is simply the missing figure on the account to make it balance.

        I do suggest that you watch the earlier lectures on double entry bookkeeping,

  2. avatar says

    Test question 2. I don’t understand why 5% settlement is being added. How do I also know if the sales tax has been included in the list price of goods for in this example.

    Please explain.

    • Profile photo of John Moffat says

      This question is a little bit unfair (and I will remove it in the next edition).

      However the tax rule is that the sales tax is calculated subtracting all discounts. The settlement discount is only given if the customer pays within whatever time limit we give (which is why the full amount is show as receivable until we find out if they pay on time or not) but the sales tax is always calculated assuming that they will take the discount.

      Again, because that is a tax rule (and this is not a tax exam) it is a bit unfair which is why I will remove this question.

  3. avatar says

    Sir, it is not very clear from tax point of view: Normally we should charge 18% tax on the sale=960*18%=172.8, but we charge less(164.16). In my country this would be tax calculation error and imply tax penalties. Tax is always calculated as a fixed percentage on the amount you declare as a sale. You cannot declare a certain amount, and then calculate 18% on a different amount..
    Second: What if customer fails to pay in advance: It would imply that our tax is lower than it should have been: our sales amount is 960, tax 18% should be applied on this amount. Are you sure sales tax must not be recalculated in this case?

    • Profile photo of John Moffat says

      Yes, I am 100% sure! It is the tax rule in the UK.

      However you will have noticed that the example is not any longer in the Lecture Notes (which I assume you have downloaded because otherwise there is no point in watching the lectures). I am going to remove the lecture as well because (as I wrote in response to an earlier question below, it would now be unfair for it to be asked in F3 since it is a tax rule rather that an accounting rule.

      For your information. The tax authorities do not have a problem with this for two reasons – firstly such discounts are usually only given from business to business and so the customer business only can claim back the VAT charged – the net effect to the tax authorities is zero. Also they do say that the discount must be a commercial rate which means it would only ever be pretty small and so the affect on the amount of tax would be very small.

  4. avatar says

    so I understand that, sales tax isn’t representing in inc statement. if it is not paid until end of year it will shown in statement of financial position? under liabilities?

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