Question

Orion Corporation made cash sales during May which totaled $19,635, including the 5% sales tax. These sales remain unrecorded, and no sales tax has been remitted to the state. Journalize Orion's sales for May

Answer 1

Answer:

Journal entry for recording sales is as follows:

Particular	Dr ($)	Cr ($)
Cash Account	$ 19,635
To Sales		$ 18,700
To Sales tax payable		$        935

Working note:

Calculation of Sales amount & sales tax payable is as follows:

Amount $ 19,635 included sales tax 5%.

Thus, Sales amount excluding sales tax = $ 19,635 x 100 / 105 = $ 18,700

Sales tax = Sales including sales tax - Sales excluding sales tax

= $ 19,635 - $ 18,700

= $ 935

alternative,

Sales tax payable = $ 19,635 x 5 / 105 = $ 935

Note:

1. Sales tax is not a revenue for a company. It is an liability for company to collect sales tax from customer & pay it to the sales authorities (government0. As sales tax is a liability thus credit the sales tax payable under balance sheet - liabilities head.

2. Sales is a income to be recorded or accounted excluding sale tax. As sales is a income credit the sales accoount as per rule; Credit all income and gains.

3. Cash collection will always including sales tax. Debit the cash account as per rule; Debit what comes in.