Dreams Take Flight Ltd. includes the sales tax in the amount recorded in the Sales account. The adjusting entry at the end of the period includes a:
A) debit to Sales
B) debit to Sales Tax Expense
C) debit to Sales Tax Payable
D) credit to Sales

Question

Quizplus · Accepted Answer

CWhen a company includes sales tax in the amount recorded in the Sales account, the adjusting entry to account for the sales tax involves debiting the Sales account to remove the sales tax amount from sales (since the sales tax collected is not part of the company's earnings but is owed to the government) and debiting Sales Tax Payable to recognize the liability for the amount of sales tax that needs to be remitted to the government.