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.
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FASales Tax
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 = 45,000 Input Tax (Tax on Purchases): 100,000*20% = 20,000 Tax 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.
Thanks to you both i really appreciate.
@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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