Answer:
1. Debit Cash $31,500
Credit Sales Revenue $30,000
Credit sales taxes payable $1,500.
Being sales of goods and 5% sales tax
2, Debit Cash $25,680
Credit Sales Revenue $24,000
Credit Sales taxes payable $1,680.
Being sales of goods and 7% sales tax
Explanation:
1. When sales are made in cash, the amount received or the sales value is debited to cash/bank account while the corresponding credit entries go to both sales revenue account and sales tax payable account. The tax element must be separated from the sales revenue because of its statutory nature and also to allow for easy remittance.
The following entries will be passed
1. Debit Cash $31,500
Credit Sales Revenue $30,000
Credit sales taxes payable $1,500.
Being sales of goods and 5% sales tax
2, The same entries will be passed as it is in number 1 above, but since Waterman Company does not segregate sales and sales taxes, we need to compute the net sales and sales tax payable before passing any entry.
Let the net sales = X
Gross Sales = $25,680
Gross sales = X + (7% of X)
$25,680 = X + 0.07X
$25,680 = 1.07X
Divide both sides by the coefficient of X
$25,680/1.07 = 1.07X/1.07
$24,000 = X
That is, sales net of tax is $24,000
The Tax payable is 7% of $24,000 = 1,680
Therefore the following entries will be passed
Debit Cash $25,680
Credit Sales Revenue $24,000
Credit sales taxes payable $1,680
Being sales of goods and 7% sales tax
