Skip to content

ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries

The purchase day book for a month shows net goods $20,000 and sales tax $3,000 (recoverable), total $23,000, all on credit. What is the correct posting in the general ledger?

Debit Purchases $20,000 and Sales tax $3,000, with a credit of $23,000 to the trade payables control account. Recoverable sales tax is not a cost of purchases, but suppliers must be paid the full gross amount.

  1. ADebit Purchases $23,000, credit Trade payables control $23,000
  2. BDebit Purchases $20,000, debit Sales tax $3,000, credit Trade payables control $23,000Correct
  3. CDebit Purchases $20,000, credit Sales tax $3,000, credit Trade payables control $20,000
  4. DDebit Trade payables control $23,000, credit Purchases $20,000, credit Sales tax $3,000

Explanation

Recoverable sales tax is an asset (or reduction of the liability to the tax authority), so it is debited separately from purchases. The total owed to suppliers of $23,000 is credited to the payables control account. Option 1 wrongly includes the tax in the cost of purchases.

Did you get it right without looking?

One question tells you little. A timed set on General ledger accounts and journal entries shows your real accuracy, how long you take and where you lose marks.

Practise General ledger accounts and journal entriesFree diagnostic mock

More General ledger accounts and journal entries questions