Question

Sales Tax

A sale of merchandise on account for $36,000 is subject to an 8% sales tax.

a. Should the sales tax be recorded at the time of sale or when payment is received?

b. What is the amount of the sale?
$

c. What is the amount debited to Accounts Receivable?
$

d. What is the title of the account to which the $2,880 ($36,000 × 8%) is credited?

Answer 1

a.

When merchandise is sold, entry for sale is recorded along with sales tax. Hence, sales tax should be recorded at the time of sale, but not when payment is received.

b.

Calculate amount of the sale:

Merchandise is sold on account for \(\$ 36,000\). Hence, amount of sale is \(\$ 36,000\).

c.

Calculate amount debited to accounts receivable:

Sale of merchandise of \(\$ 36,000\) is subject to \(8 \%\) sales tax. Amount debited to account receivable is \(\$ 38,880(\$ 36,000 \times 108 \%)\).

Hence, amount debited to accounts receivable is \(\$ 38,880 .\)

d.

Entry at the time of sale is recorded by debiting accounts receivable and crediting sales account with sale amount and sales tax payable with sales tax amount.

Hence, an amount of \(\$ 2,880\) is credited to sales tax payable account.