The Kandy Company has total cash register receipts of $8,820. This total includes a 5% sales tax. The entry to record the receipts will include a:
A) debit to Sales Tax Expense for $420.
B) credit to Sales for $8,820.
C) credit to Sales Taxes Payable for $420.
D) credit to Sales Taxes Payable for $820.

Question

Quizplus · Accepted Answer

The total receipts include sales tax, which means that the company did not receive the full $8,820 in revenue. Therefore, the entry should credit Sales for the net amount of the revenue received, which is $8,400 ($8,820 - $420). The sales tax collected should be recorded as a liability in Sales Taxes Payable, with a credit for the amount collected ($420). A debit to Cash or another appropriate account would also be necessary to balance the entry. Option A is incorrect because Sales Tax Expense is not used to record the amount of sales tax collected. Option B is incorrect because it does not take into account the 5% sales tax. Option D is incorrect because it overstates the amount of sales tax collected.

The Kandy Company Has Total Cash Register Receipts of $8,820