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This question is from FA Practice & Revision Kit for exam 1.9.21 – 31.08.22 BPP. I think the answer forgets about input tax? Should it be Assets $2,760 less Liabilities $1,160 equals Capital $1,600?
Question:
A business commenced with capital in cash of $1,000. Inventory costing $800 plus sales 5.5 tax is purchased on credit, and half is sold for $1,000 plus sales tax, the customer paying in cash at once. The sales tax rate is 20%. What would the accounting equation after these transactions show?Answer options:
Assets $1,800 less Liabilities $200 equals Capital $1,600Assets $2,200 less Liabilities $1,000 equals Capital $1,200
Assets $2,600 less Liabilities $800 equals Capital $1,800
Assets $2,600 less Liabilities $1,000 equals Capital $1,600 (correct answer)
The BPP answer is correct, and they have not forgotten about the input tax.
The answer shows all the workings, so ask about whichever of the workings you are not clear about and I will explain. (I assume that you have watched my free lectures on sales tax 🙂 )
hi, how do I find your lectures on sales tax? I’ve clicked to your profile and couldnt find any videos. Sorry I’m new to opentuition
hi, I’ve watched your videos. Thanks for reply. I think I get it.
After watching your videos, I understand that both use tax and sales tax are recorded to sales tax account which is a liability.
While before videos, I mistaken that use tax is recorded to input tax account – an asset GL, and sales tax is recorded to output tax account – a liability account.
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