Acca financial Accounting (FA) Study Text ac ca (FA)

Chapter 5 

KAPLAN PUBLISHING

 

81 

 

Test your understanding 4 

 

Lorenzo purchases goods for $174,240 (including sales tax) and sells 

goods for $230,400 (including sales tax). The sales tax rate is 20%. 

What amount of sales tax is ultimately payable to the tax authority 

based upon this information? 

A $9,360 

B $14,926 

C $4,471 

D $11,232 

7 

Accounting entries for sales tax 

The usual bookkeeping entries for purchases and sales are slightly amended 

when sales tax needs to be accounted for, the principle issue being the 

introduction of a sales tax account, which is a receivable or payable account 

with the tax authority. 

Sales tax paid on purchases (input tax)  

Dr Purchases – excluding sales tax (net cost) 

Dr Sales tax (sales tax) 

Cr Payables/cash – including sales tax (gross cost) 

•

 

The purchases account does not include sales tax because it is not an 

expense – it will be recovered. 

•

 

If the entity makes purchases on credit, the purchases day book analyses 

the total amount due to the supplier between the net purchase cost and 

the sales tax, with the relevant totals posted in the ledger accounts. 

•

 

If an entity makes cash purchases, on which sales tax has been charged 

by the seller, the total amount paid must be split between the net purchase 

cost and the sales tax paid. 

•

 

The payables account does include sales tax, as the supplier must be paid 

the full amount due.