Hello Mr. Moffat, at first thank you for excellent and helpful lectures.
Question: The following transactions took place during first month of trading:
* Credit sales of $121 000 excl of sales tax
*Credit purchases of $157 110 incl of sales tax
*Cash payments to credit suppliers of $82 710 incl of sales tax
Sales tax is 20%.
What is the balance on sales tax account at the end of first month of trading?
A $1 985 DR
B $1 985 CR
C $15 770 DR
D $15 770 CR
The correct answer in exam kit is A
Credit sales ($121 000/100x20) = $24 200
Credit purchases ($157 110/120x20) = ($26 185)
Can you explain please why cash payment to credit suppliers of $82 710 incl tax is not considered in calculation?
Thank you,
Iki
Ask the Tutor ACCA FA
Sales Tax
10y ago#1Sales tax is dealt with on invoices received from suppliers and invoices sent to customers.
The payment is part of the money that they owe to suppliers, and sales tax has already been accounted for on the purchases - we don't account for it a second time :-)
So easy : ), thank you.
10y ago#3You are welcome :-)
Dear sir,
Concerning the above example,if there would have been Cash payments to credit suppliers of $82 710 EXCLUDING of sales tax. What should do then?????
10y ago#5There would never be cash payments to credit suppliers excluding sales tax!!
You pay credit suppliers the amount that you owe them! The amount owed is the amount of the invoice, and the invoice will include sales tax.
I really do suggest that you watch my free lectures on sales tax.
Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
dear sir, closing debit balance will be in the creidit side of sales tax account , but why ? its called debit blance ,so it should be on debit side, please explain me to sir.
10y ago#7If the missing figure is on the credit side, then you carry it forward to the opposite side i.e. the debit side.
You should watch my free lectures on double entry bookkeeping - I explain how we balance off the accounts in that lecture, with examples.
A new company was formed with initial issue of 1000 shares all sold for 1$cash. Inventory costing 800$ net of sale tax at 17.5% os purchased on credit. Half of this inventory is then sold for 1000 plus sales tax ,the customer paying promptly in cash .
Can you please reply me fast as i am preparing for exam
10y ago#9It would help if you said what your question is!!!
(And anyway, whatever the question is, you presumably have an answer in the same book in which you found the question! So tell me what the question wants, and which bit of the answer you do not understand.)
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