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ACCA Applied Knowledge · Financial Accounting · Sales and purchases

Verity Co's sales tax account at the month-end shows: opening balance owed to the authority $3,000; output tax on credit sales $18,400; output tax on cash sales $2,600; input tax on purchases $9,700; input tax on irrecoverable entertainment of customers $800 (not recoverable) included separately in expenses; and a payment to the authority of $3,000 in settlement of the opening balance. What is the closing sales tax balance?

The closing balance is $11,300 payable. The opening $3,000 is settled by the payment, output tax totals $21,000, and only the $9,700 recoverable input tax is deducted. The irrecoverable $800 is charged to expenses and never enters the sales tax account.

  1. A$11,300 payableCorrect
  2. B$12,100 payable
  3. C$8,300 payable
  4. D$14,300 payable

Explanation

Opening liability $3,000 is cleared by the $3,000 payment, leaving nil. Output tax is $18,400 + $2,600 = $21,000. Input tax recoverable is $9,700; the $800 is expensed and not in the account. Closing is $21,000 - $9,700 = $11,300 payable. Deducting $800 gives $10,500 wrongly; ignoring the payment gives $14,300.

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