Skip to content

ACCA Applied Knowledge · Financial Accounting · Sales and purchases

Marlow Co sold goods on credit to a customer for $8,000 plus sales tax at 20%. The customer later returned goods with a net value of $1,500, and Marlow issued a credit note covering the goods and the related sales tax. What is the total amount of the credit note, and what is the effect on the sales tax account?

The credit note is $1,800, being $1,500 net goods plus $300 sales tax at 20%. Marlow debits sales returns $1,500 and sales tax $300, and credits trade receivables $1,800, because the original sale created a sales tax liability that is now reduced.

  1. A$1,500; no effect on sales tax
  2. B$1,800; debit sales tax $300Correct
  3. C$1,800; credit sales tax $300
  4. D$1,200; debit sales tax $300

Explanation

Credit note = $1,500 + 20% tax ($300) = $1,800. The original sale credited the sales tax liability, so the return reverses it by debiting sales tax $300, with sales returns debited $1,500 and receivables credited $1,800. Option C has the sales tax side the wrong way round.

Did you get it right without looking?

One question tells you little. A timed set on Sales and purchases shows your real accuracy, how long you take and where you lose marks.

Practise Sales and purchasesFree diagnostic mock

More Sales and purchases questions