A company sells merchandise for $25,000 cash on March 31. The sales tax law requires the company to collect 9.0% sales tax on every dollar of merchandise sold. Record the entry for the sale and its applicable sales tax.
Answer (2)
Calculate the sales tax: $25 , 000 × 0.09 = $2 , 250 .
Calculate the total cash received: $25 , 000 + $2 , 250 = $27 , 250 .
Debit Cash for $27 , 250 .
Credit Sales Revenue for $25 , 000 and Sales Tax Payable for $2 , 250 .
The final answer is the journal entry that records these transactions.
Explanation
Understanding the Problem The problem requires us to record the journal entry for a cash sale, including the applicable sales tax. We need to calculate the sales tax and the total cash received, then properly debit and credit the appropriate accounts.
Calculating Sales Tax First, we calculate the sales tax amount. The sales tax is 9.0% of the merchandise sales of $25 , 000 . So, we multiply the sales amount by the tax rate: S a l es T a x = $25 , 000 × 0.09 = $2 , 250
Calculating Total Cash Next, we calculate the total cash received. This is the sum of the merchandise sales and the sales tax collected: T o t a lC a s h = M erc han d i se S a l es + S a l es T a x = $25 , 000 + $2 , 250 = $27 , 250
Recording the Journal Entry Now, we record the journal entry. We debit (increase) the Cash account for the total cash received, credit (increase) the Sales Revenue account for the merchandise sales, and credit (increase) the Sales Tax Payable account for the sales tax amount.
Final Journal Entry The journal entry is as follows:
Date
Account
Debit
Credit
March 31
Cash
$27,250
Sales Revenue
$25,000
Sales Tax Payable
$2,250
To record cash sales and sales tax
Examples
Imagine you're running a small retail business. When you sell a product, you not only receive money for the item itself but also collect sales tax on behalf of the government. This problem illustrates how to properly account for these transactions. For example, if you sell goods worth $100 and the sales tax is 8% , you would collect $108 in total. You then record $100 as sales revenue and $8 as sales tax payable, which you'll later remit to the government. This ensures accurate financial reporting and compliance with tax laws.
The company calculates the sales tax on $25,000 at 9.0%, resulting in $2,250. The total cash received is $27,250, and the journal entry records this by debiting Cash, and crediting Sales Revenue and Sales Tax Payable. This process guarantees accurate accounting and compliance with sales tax laws.
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