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X company sales tax for the month of March :
Sales including sales tax 109250
Purchases exclusive of tax 64000Sales tax rate is 15% and the sales tax account showed an opening credit balance of 4540 at the beginning of the month and closing debit balance of 2720 at the end of the month
What was the total tax paid to authorities during the month.I calculate it and got 6470 but the book’s answer is 11910 and they considered the closing balance as credit in the sales tax account when they solved the problem
can u please explain why would they credit a debit closing balance.
To end up with a debit balance means carrying forward the balance from the credit side of the account.
(If you are unsure about this then please watch the free lectures on double entry bookkeeping going through how we balance accounts).However, the exam has very little testing on debits and credits and preparing t-accounts as workings usually ends up wasting too much time.
In this question, they starting off owing 4540. On the sales they owe an additional 14250.
This is reduced by the tax on the purchases of 9600.
This would mean that if that had paid over nothing then they would be owing 9190.However at the end of the month they are owed 2720 by the tax authority, so they must have paid not only the 9190 but also the 2720 that they are now owed back.
So a total paid of 11910.Thank you sir for replying. I thought that debit balance as closing balance would mean that the authority owes us 2720 this is how I thought of it. I watched all the lectures twice 🙂 and I know exactly what do you mean. Thank you again
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