Bonita Corporation made credit sales of $26,400 which are subject to 5% sales tax. The corporation also made cash sales which totaled $27,195 including the 5% sales tax.

Required:

a. Prepare the entry to record Dillons' credit sales.

b. Prepare the entry to record Dillons' cash sales.

a Debit Accounts receivables $27,720

Credit Sales revenue $26,400

Credit Sales tax $1,320

Being entries to record credit sales

b. Debit Cash account $27,195

Credit Sales revenue $25,900

Credit Sales tax $1,295

Being entries to record cash sales

Explanation:

The sales made by an entity may involve the immediate or later payment of tax. Either way, both are usually subject to sales tax. Tax on sales is known as output tax. To account for this,

Debit Account receivables/Cash 105%

Credit Sales 100%

Credit Sales tax 5%

For the credit sale, the sales tax applicable

= 5% * $26,400

= $1,320

Total receivable = $26,400 + $1,320

=$27,720

For the cash sales, the sale tax is

= 5/105 * $27,195

= $1,295

Actual sale = $27,195 - $1,295

= $25,900