Question

In performing accounting services for small businesses, you encounter the following situations pertaining to cash sales. 1. Poole Company enters sales and sales taxes separately on its cash register. On April 10, the register totals are sales $48,500 and sales taxes $2,425. 2. Waterman Company does not segregate sales and sales taxes. Its register total for April 15 is $26,750, which includes a 7% sales tax. Prepare the entry to record the sales transactions and related taxes for each client.

Answer 1

Answer:1. Poole journal $

Date

April 10

Cash account Dr 50,925

Cash sales Cr 48,500

Sales tax. Cr. 2425

Narration. Cash sales inclusive of sales tax.

Waterman journal $

Date

April 15

Cash account Dr 26750

Cash sales Cr. 25,000

Sales tax. Cr. 1750

Narration. Cash sales inclusive of sales tax

Explanation:

Firms are authorized by the government to collect sales tax on their behalf at the time of sales and such amount when collected are treated as liability by the firm to be remitted to the goverments.

At the point of sale the sales tax is showing as percentage to be charged on sales separately e.g 5% on sales figures.

If the tax percentage is not separated at the time of sales and the sales is made inclusive of sales tax then the sales tax like in the above scenario will be 7/107 * $26,750 which gives $1750