ACCA Applied Knowledge · Financial Accounting · Receivables and payables
Harbour Ltd sells goods on credit for a net price of $4,000. Sales tax is charged at 15%. Which entry correctly records the sale?
Receivables are debited with the gross amount of $4,600, sales are credited with the net $4,000 and sales tax payable is credited with $600. Sales tax collected is owed to the tax authority, so it is a liability and not revenue.
- ADr Receivables $4,600; Cr Sales $4,000; Cr Sales tax payable $600Correct
- BDr Receivables $4,000; Cr Sales $4,000
- CDr Receivables $4,600; Cr Sales $4,600
- DDr Receivables $4,000; Cr Sales $3,400; Cr Sales tax payable $600
Explanation
Sales tax is 15% x $4,000 = $600, so the customer owes $4,600. Revenue is recorded net at $4,000 and the $600 is a liability to the tax authority. Recording sales at $4,600 wrongly includes tax in revenue.
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