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ACCA Applied Knowledge · Financial Accounting · Sales and purchases

At 31 December, Rowan Co's ledger shows trade receivables of $60,000. Rowan has just discovered that a credit note for $900 (including sales tax of $150) issued to a customer for returned goods was never posted to the ledgers. Rowan's sales tax is recorded in a separate account. What are the corrected trade receivables and the effect on net profit?

Trade receivables become $59,100 and profit falls by $750. The unposted credit note credits receivables by $900, debits sales returns by $750 and debits sales tax by $150. Only the net $750 reduces revenue, because sales tax is a liability, not income.

  1. A$59,100; profit falls by $900
  2. B$59,100; profit falls by $750Correct
  3. C$60,900; profit falls by $750
  4. D$59,100; no effect on profit

Explanation

Posting the credit note credits receivables $900, giving $59,100. Debit sales returns $750 and debit sales tax $150. Revenue falls by the $750 net amount, so profit falls by $750, not $900, since sales tax is not income. Option C adds rather than deducts from receivables.

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