In performing accounting services for small businesses, you encounter the following situations pertaining to cash sales.

1. poole company enters sales and sales taxes separately in its cash register. on april 10, the register totals are sales $30,000 and sales taxes $1,500.

2. waterman company does not segregate sales and sales taxes. its register total for april 15 is $25,680, which includes a 7% sales tax.

prepare the entry to record the sales transactions and related taxes for each client.

e10-3 poole company
apr. 10
waterman company
15

1. Debit     Cash                                $31,500  

  Credit    Sales Revenue               $30,000

  Credit    sales taxes payable       $1,500.

Being sales of goods and 5% sales tax

2, Debit     Cash                               $25,680  

   Credit    Sales Revenue              $24,000

   Credit    Sales taxes payable         $1,680.

Being sales of goods and 7% sales tax

Explanation:

1. When sales are made in cash, the amount received or the sales value is debited to cash/bank account while the corresponding credit entries go to both sales revenue account and sales tax payable account. The tax element must be separated from the sales revenue because of its statutory nature and also to allow for easy remittance.

The following entries will be passed

1.   Debit       Cash                            $31,500  

    Credit      Sales Revenue            $30,000

    Credit      sales taxes payable    $1,500.

Being sales of goods and 5% sales tax

2, The same entries will be passed as it is in number 1 above, but since Waterman Company does not segregate sales and sales taxes, we need to compute the net sales and sales tax payable before passing any entry.

 Let the net sales  = X

 Gross Sales          =  $25,680

 Gross sales          = X + (7% of X)

      $25,680          = X + 0.07X

      $25,680          = 1.07X

Divide both sides by the coefficient of X

     $25,680/1.07    = 1.07X/1.07

         $24,000        =  X

That is, sales net of tax is  $24,000  

The Tax payable is 7% of  $24,000  = 1,680

Therefore the following entries will be passed

    Debit      Cash                                   $25,680  

    Credit     Sales Revenue                  $24,000

    Credit     sales taxes payable             $1,680

Being sales of goods and 7% sales tax  

it should be

answer; the above statement/question is ( true);