Selling $130 of merchandise to a customer for $200 cash in a state where the sales tax rate is 4%:

Question

Quizplus · Accepted Answer

The sale of merchandise for $200 cash includes the cost of the merchandise ($130) plus a profit margin. The sales tax collected (4% of $200 = $8) is also included in the cash received but is a liability to the state, not income. Therefore, cash flow from operating activities increases by the total cash received ($200 + $8 for sales tax = $208). Total assets increase by the net profit plus the sales tax collected (since the sales tax is a liability, the cash received for it increases assets until paid to the state). Stockholders' equity increases by the net profit from the sale ($200 - $130 = $70).

Selling $130 of Merchandise to a Customer for $200 Cash