Which of the following represents the impact of a taxable cash sale of $400 on the accounting equation if the sales tax rate is 5%?
A) An increase to cash for $420, an increase to sales tax expense for $20, and an increase to sales revenue for $400.
B) An increase to cash for $400, an increase to sales tax payable for $20, and an increase to sales revenue for $380.
C) An increase to cash for $420, an increase to sales tax payable for $20, and an increase to sales revenue for $400.
D) None of these answer choices is correct.

Question

Quizplus · Accepted Answer

In a taxable cash sale, the revenue generated will include the sales price plus the sales tax collected from the buyer. Therefore, cash will increase by $420, consisting of $400 sales revenue and $20 sales tax collected. Since the sales tax collected is a liability, sales tax payable will increase by $20. The increase in sales revenue will be $400. This results in an increase to both assets (cash) and equity (revenue).

Which of the Following Represents the Impact of a Taxable