Jackson Co. sold merchandise on account to S. Thomas, invoice no. 121, for $125.50, plus 5% sales tax. Which of the following is true about the journal entry to record this transaction?

Question

Quizplus · Accepted Answer

The journal entry to record the sale on account to S. Thomas would be:

Debit Accounts Receivable $125.50
Credit Sales $125.50
Debit Sales Tax Payable $6.275
Credit Sales $6.275

This is because the sale amount of $125.50 is credited to the Sales account and the corresponding increase in Accounts Receivable (the amount owed by S. Thomas) is debited. Additionally, the sales tax of 5% ($6.275 = $125.50 * 0.05) is credited to the Sales account (as it is a part of the sale revenue) and is debited to the Sales Tax Payable liability account. Therefore, the correct option is C.