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Tutor,there is a question:
Sales (including sales tax) amounted to $27,612.50, and purchases (excluding sales tax) amounted to $18,000.What is the balance on the sales tax account, assuming all items are subject to sales tax at 17.5%?
$962.50 DEBIT
$962.50 CREDIT
$1,682.10 CREDIT
$1,682.10 CREDIT
I think It should choose”$962.50 DEBIT”because imput sales tax is Dr and output sales tax is Cr,but the book’s answei is “$962.50 CREDIT”,which answer is correct?Thank you.The tax on the sales is 4,112.50 and this is owing to the state.
The tax on the purchases is 3,150.00 and this reduces the amount owing to the state.
The amount owing to the state is therefore 4,112.50 – 3,150.00 = 962.50.
It is owing to the state, therefore it is a liability and is therefore a credit balance.
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