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Pablo, a sales tax-registered trader, has the following transactions during July:
Sales (exc. Sales tax) $50,000
Purchases (exc. Sales tax) $33,000
Returns outwards (exc. Sales tax) $4,000
Cash received from customers $57,105
Cash paid to suppliers $38,540
Cash paid to Tax Authorities $13,600All of Pablos sales and purchases carry Sales tax at 17.5%, and the balance on his Sales tax control account at 30 June was $14,200 credit.
What was the balance on his sales tax control account as at 31 July?The correct answer is: $4,275 debit.
I see how they got this figure i.e. sales control account DR purchase tax CR sales tax:
5075 8750
13600 14200However the credit side would be heavier in this case so why is it a debit balance not credit?
I do not know where you found this example – it is not an OpenTuition example – but I think you need to ask them why the correct answer is 4275 debit.
Because it is wrong – the correct answer is a credit balance of 4275.
I get a different answer:
Cash rec: 571005………….tax=8505 payable
Cash paid:38540…………..tax=(5740) tax recoverable
Returns Out 4000………….tax=(700) tax amt to be lessened
balance tax payable: 8505-(5740+700)=2065opening tax control 14200 cr
net tax payable: 2065 cr
Tax Paid: 13,600 drAnswer: 2665 cr
where am i wrong?
You do not pay sales tax on the cash you receive from your customers – you pay sales tax on what you sell (50000 sales in this case).
Similarly you recover tax on what you buy (not on how much cash you pay your suppliers).
Also, if you buy goods and then return them you do not recover the tax on what you return – you have (700), it should be +700
Thank you!!!
one more thing on sales tax… if i am a registered tax entity and i sell to to an unregistered entity, will i add sales tax in the invoice?
Just saw ur lectures on control account… SUPER!
Yes – if you are registered for sales tax, then you must add tax. It doesn’t make any difference whether the person you are selling to is registered or not.
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