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Sales Tax Payable quiz #1

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  • What is the proper journal entry when a company collects sales revenue of \$240,000 with an 8% sales tax rate, all received in cash?
    Debit Cash for \$259,200 (total collected), Credit Sales Revenue for \$240,000, and Credit Sales Tax Payable for \$19,200.
  • How does a company record the payment of sales tax previously collected and now remitted to the government?
    Debit Sales Tax Payable for the amount remitted and Credit Cash for the same amount, removing the liability from the books.
  • Why are sales taxes collected by a company not considered revenue?
    Sales taxes are not revenue because the company collects them on behalf of the government and must remit them; they are recorded as a liability until paid.
  • If a company receives total cash receipts of \$210,000 including a 5% sales tax, how do you calculate the sales revenue and sales tax payable?
    Divide total cash receipts by 1.05 to get sales revenue (\$200,000), then subtract sales revenue from total receipts to find sales tax payable (\$10,000).
  • What is the formula used to determine sales revenue from total cash receipts when sales tax is included?
    Sales Revenue = Total Cash Receipts ÷ (1 + Sales Tax Rate as a decimal).
  • What is the accounting treatment for sales tax collected but not yet remitted to the government?
    Sales tax collected is recorded as a liability (Sales Tax Payable) until it is remitted to the government.
  • How should a company record the collection of \$240,000 in sales with an 8% sales tax, all received in cash?
    Debit Cash for \$259,200, Credit Sales Revenue for \$240,000, and Credit Sales Tax Payable for \$19,200.
  • What journal entry is made when a company remits previously collected sales tax to the government?
    Debit Sales Tax Payable for the amount remitted and Credit Cash for the same amount.
  • Why are sales taxes collected by a company not considered revenue?
    Sales taxes are not revenue because the company collects them on behalf of the government and must remit them; they are recorded as a liability until paid.
  • What formula is used to determine sales revenue from total cash receipts when sales tax is included?
    Sales Revenue = Total Cash Receipts ÷ (1 + Sales Tax Rate as a decimal).