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28 October, 09:17

Kathy's Corner Store has total cash sales for the month of $35,000 excluding sales taxes. If the sales tax rate is 6%, which journal entry is needed? (Ignore Cost of Goods Sold.)

a. debit Cash $35,000 and credit Sales Revenue $35,000

b. debit Cash $36, 050, credit Sales Revenue $35,000 and credit Sales Tax Payable $1, 050

c. debit Cash $33, 950, debit Sales Tax Receivable for $1, 050 and credit Sales Revenue for $35,000

d. debit Cash $36, 050, credit Sales Revenue $36, 050

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  1. 28 October, 09:47
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    none of the answers is correct, the correct answer should be:

    Dr Cash 37,100 Cr Sales Revenue 35,000 Cr Sales Tax Payable 2,100

    Explanation:

    If Kathy sold $35,000 during the month and the sales tax is 6%, then she will have collected $37,100 in cash.

    $35,000 belong to her as sales revenue and $2,100 ( = $35,000 x 6%) is money she owes as sales taxes.

    Since cash is an asset, when it increases it must be debited.

    When revenue increases, it must be credited.

    Sales tax payable is a liability, when it increases it must be credited.

    Dr Cash 37,100 ( = 35,000 + 2,100)

    Cr Sales Revenue 35,000 (net revenue)

    Cr Sales Tax Payable 2,100 ( = 35,000 x 6%)
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