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During October a company has made sales of $270,000(inclusive of sales tax at the rate of 20%) and had made purchases of $100,000 (exclusive of sales tax at 20%).
What is the balance on the sales tax account at the end of October?
Kindly help me to solve this question.
Thank you.
Here’s my attempt of an answer.
Tax payable is £270,000 × 0.2 = £54,000
Tax reclaimable is £100,000 × 20/80 = 25,000
Assuming there was no balance b/f, and the purchases were all charged with sales tax, the balance should be £25,000 – £54,000 = £29,000 payable (credit entry).
@neilsolaris said:
Here’s my attempt of an answer.Tax payable is £270,000 × 0.2 = £54,000
Tax reclaimable is £100,000 × 20/80 = 25,000
Assuming there was no balance b/f, and the purchases were all charged with sales tax, the balance should be £25,000 – £54,000 = £29,000 payable (credit entry).
Sales figure 270,000 is INCLUSIVE of tax while Purchases figure 100,000 is EXCLUSIVE of tax. You did the “Complete Reversal Error”… 😉
Here’s the correction.
Output Tax (Tax on Sales):
270,000*20/120 = 45,000Input Tax (Tax on Purchases):
100,000*20% = 20,000Tax Payable = Output Tax – Input Tax = 45,000 – 20,000
Tax Payable = 25,000
which will be the balance at the end of October.Oops. I hadn’t made a reversal error, I just messed up on my fractions! I meant 20/120 & 20/100 respectively.
@neilsolaris said:
Oops. I hadn’t made a reversal error, I just messed up on my fractions! I meant 20/120 & 20/100 respectively.Thats okay….. 🙂
@ayoliberty said:
Thanks to you both i really appreciate.Your Welcome…. 🙂
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