Question

Purchase Retailer made cash sales during the month of October of $132,600. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

a. Debit Cash for $132,600.
b. Credit Sales Tax Payable for $7,506.
c. Credit Sales for $125,094.
d. Credit Sales Tax Payable for $7,956.

Answer 1

Incorrect options were provided for the credit to sales, but the debit to cash for $132,600 and credit to Sales Tax Payable for $7,956 are correct. The correct credit to sales is actually $124,644.

Step-by-step explanation:

The student asked which entries would be included in the summary journal entry to reflect cash sales for a retailer, which were subject to a 6% sales tax. To address this, one must calculate the sales tax and separate it from the total collected amount. The correct sales tax payable can be computed as follows: $132,600 multiplied by the tax rate of 6% (or 0.06), which equals $7,956. Therefore, entries (a) and (d) are correct.

The entry for cash would indeed be a debit of the total collected amount, $132,600, and the sales tax payable would be credited for $7,956. The sales, before tax, would thus be the total cash minus the sales tax ($132,600 - $7,956 = $124,644), which is not an option listed. Understanding this concept is crucial in the field of accountancy and for correctly managing business transactions.