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Sorry for asking a lot of questions but my exam is in a few days Mr.moffat and I was wondering whether you could help me with this question
Alana is not registered for sales tax purposes. She has recently received an invoice for goods for resale which cost $500 before sales tax,which is levied at 15%. The total value was therefore $575
What is the correct entry to be made in Alana’s general ledger in respect of the invoice?
The corect answer is debit purchases $575 and credit payables $575
I wanted to know why have they debited purchases of 575..isn’t it supposed to be 500
Eventhough it is unregistered it isn’t a sale
so it should be purchase +vat =total(creditor account)Only for sales it should be sales=total(recievable account)
So why have they included the 75 into the purchases
this is a purchase and not a sale so isn’t this supposed to act like a normal registered business for purchasesHi I just now also went through the free lecture notes but I couldn’t find anything in regard with registered or unregistered businesss
mr.moffat please solve this doubt I have please..i’ve booked my exam already and I really hope you asnwer this soon since it is a very important question for me and I don’t wanna be stuck in the exam room with this doubt
Thank you
There is no point at all in using the lecture notes without watching the lectures that go with them – it is in the lectures that I explain and expand on the notes (they are only lecture notes!!).
I make it very clear in the lectures that if a business is not registered for sales tax then they do not add tax when they make sales, and that they cannot reclaim tax on any purchases.
Therefore with regard to your example, firstly this is not a sale (they receive an invoice which means they have bought something, not sold it!!). The total of the invoice is 575, and since they cannot reclaim tax because they are not registered, they debit all 575 to purchases.
Yes I understood already that this is a purchase and that there is no difference between Registered and unregistered for purchases
But since this is a purchase isn’t it supposed to be
Debit purchases
debit Vat
credit trade payablesInstead they have only given two entries which is usually only done for unregistered businesses
I do not think that you have read my previous reply properly.
There is a big difference between businesses that are registered and not registered for sales tax.
The entry you have typed in your last post would be correct if the business was registered for sales tax.
However your original question specifically says that Alana is not registered!!
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