SALES TAX

This topic has 3 replies, 2 voices, and was last updated 8 years ago by Chris.

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January 22, 2018 at 11:53 am #432038
suleymanabuzerli
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Business commenced with capital in cash of 1000$.Inventory costing 800$ plus sales tax is purchased in cash,and half is sold for 1000$ plus sales tax ,the customer paying in cash at once.The sales tax rate is 20%.
What would the accounting equation after these transactions?

Assets
?

Liabilites

?

Capital

?
January 22, 2018 at 12:02 pm #432041
Chris
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The journal entries required would be:

DR Cash 1000
CR Share capital 1000

DR Inventory 800
DR Sales tax recoverable/receivable 160
CR Cash 960

DR Cash 1200
CR Revenue 1000
CR Sales tax recoverable/receivable 200

DR Cost of sales 400
CR Inventory 400

Now try working out the net effect of these and you should get your answer.
January 22, 2018 at 12:48 pm #432058
suleymanabuzerli
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yes,but l utilize this method,liability is 0 but tax liability should be 40$ ( 200-160=40)
January 22, 2018 at 6:12 pm #432133
Chris
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Perhaps the solution to the question considers the tax liability to have been paid with a further journal of

DR Sales tax recoverable/receivable 40
CR Cash 40

Where are you getting this question from?
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