Question

Richard is a VAT registered trader whose sales and purchases carry VAT at the standard rate of 20%. Richard sells a customer goods on credit for £4,800 exclusive of VAT.

What is the double entry to record this?
A Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760
B Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800
C Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960
D Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800

Answer 1

The correct double entry for Richard's VAT included credit sale is Debit Receivables £5,760, Credit Sales £4,800, and Credit VAT £960. This treatment accurately reflects an increase in both sales revenue and VAT liability.

Step-by-step explanation:

The correct double entry to record Richard's sale of goods on credit for £4,800 exclusive of VAT, with a standard VAT rate of 20%, would be:A) Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760.Here's the breakdown of the double entry: Debit Sales £4,800: This represents the revenue generated from the sale. Sales is an income account, and it increases with a debit entry. Debit VAT £960: VAT is a liability account, and it represents the tax that Richard needs to remit to the tax authorities. It increases with a debit entry. Credit Receivables £5,760: This represents the amount .

Richard is expecting to receive from the customer in the future. Receivables is an asset account, and it increases with a credit entry.This entry ensures that the accounting equation (Assets = Liabilities + Equity) remains in balance. The total debits (£4,800 + £960) equal the total credits (£5,760), reflecting the financial impact of the sale and the associated VAT.