Kathy's Corner Store has total cash sales for the month of $40,000 excluding sales taxes.If the sales tax rate is 5%,which journal entry is needed? (Ignore Cost of Goods Sold. )

Question

Quizplus · Accepted Answer

Since the sales tax rate is 5%, the total amount to be collected for sales tax is 5% of $40,000 which is $2,000. Therefore, the correct journal entry is to debit Cash for $42,000 (total cash sales plus sales tax collected), credit Sales Revenue for $40,000 (total amount of sales excluding sales tax), and credit Sales Tax Payable for $2,000 (amount collected for sales tax to be remitted to the government). So option D is the best choice. Option A is incorrect because it does not account for the sales tax collected. Option B is also incorrect since it does not account for the sales tax collected. Option C accounts for the sales tax collected, but debits cash for the wrong amount.

Kathy's Corner Store Has Total Cash Sales for the Month