ACCA Applied Knowledge · Financial Accounting · Sales and purchases
The sales day book of Karan Co for March shows: net sales $40,000, sales tax $8,000, total $48,000. The sales returns day book shows: net $2,500, sales tax $500, total $3,000. What is the balance posted to the sales tax account for these two books, and on which side?
The net balance is a $7,500 credit to the sales tax account. Sales tax of $8,000 on sales is credited, and the $500 on returns is debited to reduce the amount owed to the tax authority, leaving $7,500 payable.
- ANet credit of $7,500Correct
- BNet debit of $7,500
- CNet credit of $8,500
- DNet credit of $5,500
Explanation
Sales tax on sales of $8,000 is credited as a liability. Sales tax on returns of $500 is debited, reducing the liability. Net is $8,000 - $500 = $7,500 credit. Adding the two gives $8,500, which wrongly treats the returns as increasing the liability.
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