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Chapter 13: Question 5BE (page 692)

BE13-5 (L01) Dillons Corporation made credit sales of \(30,000 which are subject to 6% sales tax. The corporation also made cash sales which totalled \)20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons’ credit sales. (b) Prepare the entry to record Dillons’ cash sales.

Short Answer

Expert verified

The amount of sales tax payable is $1,170.

Step by step solution

01

Meaning of Credit Sales

Sales are said to be credit sales when the seller transfers risk and rewards related to goods to the buyer but receives the price of goods later. The seller charges interest from the buyer if payments are not made between the interest-free credit period.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

Accounts Receivable

$31,800

Sales

$30,000

Sales Tax Payable ( $30,000 x 6%)

$1,800

Cash

$20,670

Sales

$19,500

Sales Tax Payable

($20,670 / 1.06 = $19,500)

$1,170

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