Question

Anna’s business is registered for sales tax purposes. During the quarter ending 31 March 2018, she made the following sales, all of which were subject to sales tax at 17.5%:

$10,000 excluding sales tax

$7,402 including sales tax

$6,745 excluding sales tax

$11,632 including sales tax.

She also made the following purchases all of which were subject to sales tax at 17.5%:

$15,000 excluding sales tax

$12,455 including sales tax

$11,338 including sales tax

$9,870 including sales tax.

Calculate the balance on the sales tax account as at 31 March 2018?

Answer 1

Answer:

Calculation of Sales Tax Payable:

Sales	Sales Including Tax	Sales Tax Payable
10,000	11,750	1,750
6,300	7,402	1,102
6,745	7,925	1,180
9,900	11,632	1,732
Total 32,944	38,709	5,765

Calculation of Sales Tax Paid:

Purchases	Purchases Including Tax	Sales Tax Paid
15,000	17,625	2,625
10,600	12,455	1,855
9,649	11,338	1,689
8,400	9,870	1,470
Total 43,649	51,288	7,639

Steps to calculate Tax:

In case, where sales is given excluding Tax:
Tax = Sales excluding tax* Tax rate
= 10000* 17.5%
= 1750

In case, where sales is given including tax:
Tax= Sales including tax* Tax Rate/(1+Tax Rate)
=7402 * 17.5%/(1+17.5%)
= 1102

Similarly we can calculate tax for Purchases as well.

Calculation of Net Tax Payable (Balance on Sales Tax Account):

Sales Tax Payable	5,765
Sales Tax Paid	7,639
Balance in Sales Tax Account	-1,873

We have a Tax Credit of $ 1,873. It means we have a debit balance of $ 1,873 on Sales Tax Account as at 31st March 2018.

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