Sales Tax, Returns and Allowances, Discounts

Sales Tax, Returns, Allowances & Discounts

Revised 11-28-22

New Accounts to Learn

• Sales Returns & Allowances (+ -) increases on debit side could be considered a contra-sales.

• Sales Discounts (+ -) increases on debit side like returns and is also contra-sales

• Sales Tax Payable (- +) increases on the credit side likes Sales is a liability

Multiple Select

Chose all accounts that increase on and have a normal debit side balance.

• Cash

• Sales

• Sales Returns and Allowances

• Sales Discounts

• Sales Tax Payable

When Returned:

Debit Sales Returns & Allowances

Credit Cash

Item sold for Cash

When returned:

Debit Sales Returns & Allowances

Credit Accounts Receivable

Item sold On Account

Sales Returns & Allowances

Example: Molly's Surplus sold $5000 goods that were later returned

Net Sales

Our two new accounts, sales returns and allowances and sales discounts will be deducted from our sales balance when we prepare or trial blance and financial statements. In other words Sales - Discounts - Returns & Allowances = Net Sales. I

Subject | Subject

Multiple Choice

These are the balances for Fran's Furniture for the year ended December 31, 2022:

Cash: $65,000

Accounts Receivable: $11,800 dr

Merchandise Inventory: $9,000 dr

Store Equipment: $10,500 dr

Building Loan: $35,000 cr

Accounts Payable: $ 10,000 cr

Capital: $51,300 cr

Sales: $80, 000 cr

Sales Returns and Allowances $7,000 dr

Sales Discount: $1,000 dr

Expenses: $10,500

What is the Net Sales amount for Fran's Furniture this year's end?

• $73,000

• $68,700

• $79,000

• $72,000

Multiple Choice

Timer's Distribution sold $400 merchandise on account to Wally's Watches who then returned it. The journal entry for Timer's Distributing to record this transaction is:

• debit Sales Returns and Allowances, $400; credit Accounts Payable/Wally's Watches, $400

• debit Accounts Receivable/Wally's Watches, $400; credit Sales Returns and Allowances, $400.

• debit Sales Returns and Allowances $400; credit Accounts Receivable/Wally's Watches, $400

• debit Accounts Payable/Wally's Watches, $400; credit Sales Returns and Allowances, $400.

Multiple Choice

The Jungle Gym returned $750 merchandise that was purchased for cash from Footware Supplies. What is the journal entry for Footware Supplies to make that will record this transaction?

• debit sales returns and allowances $750; credit cash $750

• debit cash $750;

  credit sales returns and allowances $750

• debit accounts payable $750; credit sales returns and allowances $750

• debit sales returns and allowances $750; credit accounts payable $760

Sales Tax

Example: If you make a sale total of $670 plus 7% Sales Tax (for Cash)

You record the sales tax collected as a liablity

Calculate the tax $670 x .07 = $46.90 taxes owed out of 670

The correct journal entry would be:

Debit Cash $716.90

Credit Sales $670.00

Credit Sales Tax Payable $46.90

Sales Tax

Example: If you have a sale total of $670 with 7% Sales Tax (On Account)

You record the sales tax collected as a liablity

Calculate the tax $670 x .07 = $46.90 taxes owed out of 670

The correct journal entry would be:

Debit Accounts Receivable $716.9

Credit Sales $670

Credit Sales Tax Payable $46.90

Remit Sales Tax to Agency

Example: If sales total $425,000 a month with 7.5% Sales Tax in NC

When you remit your sales tax to NC Journal it

Calculate the tax to remit $425,000 x .075 = $31,875

The proper journal entry to record this remittance:

Debit Sales Tax Payable $31,875

Credit Cash $31,875

Multiple Choice

If a customer buys $300.00 worth of merchandise and the sales tax is 8%, the total bill the customer must pay is:

• $300.00

• $304.00

• $324.00

• $342.00

Multiple Choice

When Montana Saddle Company Remits the sales tax collected to the government at the end of the month. {Month's Total Sales = $259,000; 8% Tax rate}

What is the journal entry to record this remittance?

• Debit Sales Tax Payable, $20,720; Credit Cash $20,720

• Debit Sales $238,280, Debit Sales Tax Payable $20,720; Credit Cash $259,000

• Debit Cash, $20,720;

  Credit Sales Tax, Payable, $20,720

• Debit Cash, $259,000; Credit Sales, $238,280 Credit Sales Tax Payable $20,720

Multiple Choice

The Mine Safety Warehouse sold Lucky Mines, merchandise on account for $414, plus a sales tax of $24. What is the journal entry for The Mine Safety Warehouse to record this transaction?

• Debit Accounts Receivable/Lucky Mines, $438; Credit Purchases $438

• Debit Sales, $414, Sales Tax Payable, $14; Credit Accounts Receivable/Lucky Mines, $438.

• Debit Purchases, $438; Credit Accounts Receivable/Lucky Mines, $438.

• Debit Accounts Receivable/Lucky Mines, $438; Credit Sales, $414, Sales Tax Payable, $24.

Multiple Choice

Overseas Oil Co. sold merchandise for $665, plus sales tax of $48, to Auto Plastics, who paid for the merchandise with a bank credit card at the time of the sale. What is the journal entry for Overseas Oil Co. to record this transaction?

• Debit Sales, $665, Sales Tax Payable, $48; Credit Cash $713.

• Debit Cash, $713; Credit Sales, $665, Sales Tax Payable, $48

• Debit Accounts Receivable/Auto Plastics, $713; Credit Cash, $713.

• Debit Sales, $665, Sales Tax Payable, $48; Credit Accounts Receivable/Auto Plastics, $713.

Sales Discounts

Reduces the amount a customer owes based on terms

• Example: 2/10 n/30 this means 2% discount if payed for in 10days and net amount is due at 30 days

• Example: 3/15 n/50 this means 3% discount if payeed within 15 days but the full net amount is due at the 50th day

Multiple Choice

City Utilities received $118 cash from Cody Waters for payment on account. Cody Waters took a $3 discount for paying early. What is the journal entry for City Utilities to record this transaction?

• Debit Cash, $118; credit Sales Discounts $3; credit Accounts Receivable/Cody Waters, $115.

• Debit Accounts Receivable/Cody Waters, $121, credit Cash, $118;credit Sales Discounts $3

• Debit Cash, $118; debit Sales Discounts $3; credit Accounts Receivable/ Cody Waters, $121.

• Debit Sales Discounts $3; Debit Accounts Receivable/Cody Waters, $115; credit Cash, $118

Multiple Choice

Given the terms of sale 3/15, n/30 this would mean:

• 3% discount if paid by the 15th otherwise due by the 30th

• 15% discount when paid in 30 days,

• 3% discount if paid in 15 days otherwise due in 30 days

• 3% due in 15 days rest due in 30 days

Multiple Choice

On May 1, Lockwood industries sold equipment on account to Lands Ahoy totaling $8,500. The terms were 25/10 net/45. How much will Lands Ahoy owe on May 5?

• $6,375

• $2,125

• $10,625

• $8,500

Debit Sales Returns &

Allowances $4,371

Debit Sales Tax Payable

$329

Credit Cash $4,700

If bought for cash

Debit Sales Returns &

Allowances $4,371

Debit Sales Tax Payable

$329

Credit Accounts Receivable $4,700

If bought on Account

More on Returns

Example: Company returned $4,700 item purchased that included $329 in sales tax

Multiple Choice

Delacom Communications accepted returned merchandise purchased on account by Wave Com for, $997, plus a sales tax of $62. What is the journal entry for Delacom Communications to record this transaction?

• Debit Accounts Receivable/Wave Com, $1,059; Credit Sales, $1,059.

• Debit Accounts Receivable/Wave Com, $1,059; Credit Sales Returns and Allowances, $997, Sales Tax Payable, $62.

• Debit Sales, $1,059; Credit Accounts Receivable/Wave Com, $1,059.

• Debit Sales Returns and Allowances, $997, Sales Tax Payable, $62; Credit Accounts Receivable/Wave Com, $1,059