ACCA Applied Knowledge · Financial Accounting · Sales and purchases
A business receives a supplier invoice for $5,000 plus sales tax at 20%, all recoverable. Goods are bought on credit. Which entry records the invoice?
Debit purchases 5,000, debit sales tax 1,000 and credit payables 6,000. The recoverable tax is not a cost to the business but an amount due from the tax authority, while the supplier is owed the full gross invoice amount.
- ADr Purchases 5,000, Dr Sales tax 1,000, Cr Payables 6,000Correct
- BDr Purchases 6,000, Cr Payables 6,000
- CDr Purchases 5,000, Cr Sales tax 1,000, Cr Payables 4,000
- DDr Payables 6,000, Cr Purchases 5,000, Cr Sales tax 1,000
Explanation
Recoverable sales tax of 20% x 5,000 = 1,000 is a receivable from the tax authority, debited to the sales tax account. Purchases is 5,000 and payables is the gross 6,000. Option B wrongly includes recoverable tax in cost.
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