Hina Limited records a VAT inclusive figure for sales returns of £9,600 for the month of October. All sales are made on credit and VAT is charged at the rate of 20% on the net sales value of each sale. What is the correct double entry to record these sale returns?

Question

Quizplus · Accepted Answer

The correct double entry to record sales returns involves debiting the sales account to reduce revenue and debiting the VAT account to reduce the VAT liability, while crediting the trade receivables control account to reflect the reduction in the amount owed by customers. The VAT inclusive figure is £9,600, meaning the net sales value is £8,000 (£9,600 / 1.2) and the VAT is £1,600 (£9,600 - £8,000).

Hina Limited Records a VAT Inclusive Figure for Sales Returns