Question

During the month of June, Vaughn Boutique recorded cash sales of $323,400 and credit sales of $186,270, both of which include the 5% sales tax that must be remitted to the state by July 15. Prepare the adjusting entry that should be recorded to fairly present the June 30 financial statements. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered.

Answer 1

The adjusting entry that should be recorded to fairly present the June 30 financial statements is to separate the sales revenue and sales tax collected.

Step-by-step explanation:

The adjusting entry that should be recorded to fairly present the June 30 financial statements is as follows:

Debit: Sales Revenue - Credit Sales = $186,270Debit: Sales Tax Payable - Credit Sales Tax Collected = $8,089.30Credit: Sales - Total Sales = $186,270Credit: Sales Tax Collected - Total Sales Tax = $8,089.30

Since the cash sales and credit sales already include the 5% sales tax, the amounts need to be adjusted to separate the sales revenue and sales tax collected. The debit entries remove the sales tax collected from the sales revenue account, while the credit entries remove the sales revenue and the sales tax collected from the total sales and total sales tax accounts, respectively.