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Hi, Sir
Considering this problem.. I couldn’t understand the question itself. Like, if we have an opening credit balance on Sales tax account it means that we owe some amount to the government, and when we have a closing debit balance on sales tax account it means that government owes us money, right?
But here in this problem we have a closing debit balance which means that government owes us money? Doesn’t it means that we shouldn’t pay anything to the tax authorities?
On May 7, 2014
This is the question: The following info relates to Eva Co’s sales tax for the month of March 20X3.
Sales (including sales tax). $109, 250
Purchases (net of sales tax?). $64,000
Sales tax is charged at a flat rate of 15%. Eva Co’s sales tax account showed an opening credit balance of $4,540 at the beginning of the month and a closing debit balance of $2,720 at the end of the month.
What was the total sales tax pd to regulatory authorities during the month of March, 20X3?
A. $6,470.00
B. $11,910.00
C. $14,047.50
D. $13,162.17The closing balance does mean that at the end of the month the government owes us money.
That must mean that during the month we paid more than we should have – therefore they owed money back to us.At the start we owed 4540.
During the month we owe an extra 15/115 x 109250 = 14250 tax on the sales.
During the month the amount owing is reduced by 15% x 64000 = 9600 tax on the purchases.
So if we had paid nothing during the month, then we would be owing 4540 + 14250 – 9600 = 9190.
Because at the end of the month we are owed back 2720, it means we must have paid not only the 9190 but an extra 2720 as well, so we must have paid a total of 11910.On 1 September 20X9 the opening balance on Gordon’s sales tax account is $5,250 credit. During the month he makes sales net of sales tax of $62,150 and purchases inclusive of sales tax of $71,940.
The rate of sales tax is 10%.What is the balance on Gordon’s sales tax account at 30 September 20X9?
$5,575 Dr
$3,706 Cr
$4,271 Cr
$4,925 Cr
At the start of the month they owed $5,250 to the state.
During the month they charged tax on their sales of 10% x $62,150 = $6,215 and this is owed to the state.
During the month they also suffered tax on their purchases of 10/110 x $71,940 = $6,540 and this reduces the amount owed to the state.Therefore at the end of the month they are owing to the state 5,250 + 6,215 – 6,540 = $4,925. It is owing to the state and is therefore a credit balance.
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