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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

A business sells goods on credit for $9,000 plus sales tax at 20%, charged to the customer. What is the correct double entry?

Debit receivables $10,800, credit sales $9,000 and credit sales tax payable $1,800. The customer owes the gross amount, but only the net $9,000 is revenue; the 20% tax collected is a liability owed to the tax authority, not income.

  1. ADebit Receivables $9,000; Credit Sales $9,000
  2. BDebit Receivables $10,800; Credit Sales $9,000; Credit Sales tax payable $1,800Correct
  3. CDebit Receivables $10,800; Credit Sales $10,800
  4. DDebit Receivables $9,000; Credit Sales $7,200; Credit Sales tax payable $1,800

Explanation

Sales tax = 20% x 9,000 = $1,800. The customer owes 9,000 + 1,800 = $10,800, debited to receivables. Revenue is $9,000 and the $1,800 is a liability to the tax authority. Option C wrongly treats tax as revenue.

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