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Sales (including sales tax) amounted to $27,612.50, and purchases (excluding sales tax) amounted to $18,000.
What is the balance on the sales tax account, assuming all items are subject to sales tax at
17.5%?A $962.50 debit
B $962.50 credit
C $1,682.10 debit
D $1,682.10 creditwhy is a credit and not debit closing balance?
Tax is owed to the state on the sales of 4,112.5
The tax owing is reduced by the tax on the purchases of 3,150.
Therefore, the net amount owing to the state is 4,112.5 – 3,150 = 962.5
As it is owing to the state, it is a liability and therefore a credit balance.
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