Question

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Exercise 11-03 In performing accounting services for small businesses, you encounter the following situations pertaining to cash sales. 1. Poole Company enters sales and sales taxes separately on its cash register. On April 10, the register totals are sales $40,000 and sales taxes $2,000. 2. Waterman Company does not segregate sales and sales taxes. Its register total for April 15 is $22,260, which includes a 6% sales tax. Prepare the entry to record the sales transactions and related taxes for each client. (Credit account titles are automatically Indented when amount is entered. Do not Indent manually. Record journal entries in the order presented in the problem.) Date Debit Credit Account Titles and Explanation POOLE COMPANY WATERMAN COMPANY

Answer 1

journal entry of Poole Company:

Apr 10	Cash a/c	$42,000
	To Sales revenue a/c		$40,000
	To Sales tax payable a/c		$2,000
	( to record the Sales and related sales tax)

journal entry of Waterman Company:

Apr 10	Cash a/c	$22,260
	To Sales revenue a/c		$21,000
	To Sales tax payable a/c		$1,260
	( to record the Sales and related sales tax)

Notes:

Sales value including sales tax =$22,260
Sales tax Rate = 6%
Therefore, $22,260 is basic sales price + 6% sales tax = Basic price is 100% + 6% of Sales tax = 106%

Sales Tax Payable = (Total Sales Value inclusive of Sales Tax * 6) / 106
                              = $22,260 * 6) / 106
                              = $1260

Basic sales Price = Total Price - Sales Tax Payable
                            = $22,260 - $1,260
                            = $21,000