Question

E13.5 (LO 1 ) (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique recorded cash sales of $233,200 and credit sales of $153,700, both of which include the 6% sales tax that must be remitted to the state by July 15. Instructions Prepare the adjusting entry that should be recorded to fairly present the June 30 financial statements.

Answer 1

The entries that record the sales tax should be:

June X, 202x, for cash sales

Dr Cash 233,200

Cr Sales revenue 219,208

Cr Sales tax payable 13,992

June X, 202x, for credit sales

Dr Accounts receivable 153,700

Cr Sales revenue 144,478

Cr Sales tax payable 9,222

The journal entry to record the payment of sales tax:

July 15, 202x, payment of sales taxes

Dr Sales tax payable 23,214

Cr Cash 23,214

You must record sales taxes at the moment that the sale is made, crediting a liability (sales tax payable) along with the revenue account.