Question

Moondirt Company Supply does not segregate sales and sales taxes at the time of sale. The register total for March 16 is $13,375. All sales are subject to a 7% sales tax.

1. Compute sales taxes payable.

2. Make the entry to record sales taxes payable and sales.

Date	Account Titles and Explanations	Debit	Credit
March 16

Answer 1

1)

Sales excluding sales tax = $13,375/(1 + 0.07)

= $13,375/1.07

= $12,500

Sales tax payable = Total sales including sales tax - Sales excluding sales tax

= $13,375 - $12,500

= $875

Therefore, sales tax payable is $875.

2)

Journal Entry:

Date	Account Titles and Explanation	Debit	Credit
March. 16	Cash	$13,375
	Sales Revenue		$12,500
	Sales Tax Payable		$875
	(To record the sales made and also collection of sales tax from customers)
	Note: If sales are made for cash then the above journal entry is prepared but if the sales are made on account then in place of Cash, the Accounts Receivable account is debited in place of Cash. In this case, no data is given so assumed cash sales.