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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Delta Co buys inventory on credit for $8,000 plus 20% recoverable sales tax. During the same month it makes credit sales of $15,000 plus 20% sales tax. What is the balance on the sales tax account for the month?

The net balance is $1,400 payable to the tax authority. Output tax on sales is $3,000 and recoverable input tax on purchases is $1,600, so the business pays the difference of $1,400.

  1. A$1,400 payable to the tax authorityCorrect
  2. B$1,400 receivable from the tax authority
  3. C$3,000 payable to the tax authority
  4. D$4,600 payable to the tax authority

Explanation

Output tax is 20% x $15,000 = $3,000. Input tax is 20% x $8,000 = $1,600. Net payable is $3,000 - $1,600 = $1,400. Showing $3,000 ignores the recoverable input tax.

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