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ACCA Applied Knowledge · Financial Accounting · Double-entry bookkeeping principles including the maintenance of accounting records

The sales returns day book of Harbour Co for March shows credit notes issued to customers of $4,600 net, plus sales tax at 20% on those amounts. What is the total entry posted to the sales ledger control account?

The control account is credited with $5,520. Credit notes reduce amounts owed by customers, and the receivables control account holds the gross value including 20% sales tax on $4,600. Using the net amount ignores the tax, and a debit would wrongly increase receivables.

  1. A$4,600 credit
  2. B$5,520 creditCorrect
  3. C$5,520 debit
  4. D$4,600 debit

Explanation

Gross credit notes are 4,600 x 1.20 = $5,520. Customers owe less, so the receivables control account is credited with the gross amount. Crediting $4,600 omits the sales tax, and a debit would increase receivables.

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