ACCA Applied Knowledge · Financial Accounting · Receivables and payables
A trader's purchase invoice shows goods of $5,000 and sales tax of $750. Which statement is correct about recording this purchase where the tax is recoverable?
Debit purchases $5,000 and sales tax $750, and credit payables $5,750. The recoverable input tax is not part of the cost of inventory, so it is held in the sales tax account, while the supplier is owed the full gross amount.
- ADebit purchases $5,000, debit sales tax $750, credit payables $5,750Correct
- BDebit purchases $5,750, credit payables $5,750
- CDebit purchases $5,000, credit payables $5,000
- DDebit purchases $5,000, credit sales tax $750, credit payables $4,250
Explanation
Recoverable input tax is not a cost of the purchase. It is debited to the sales tax account, reducing the amount owed to the authority. The supplier is owed the gross $5,750, so payables are credited with that amount.
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