Assume a cash sale of $10,000 during a company’s first month of operations and t
ID: 2611931 • Letter: A
Question
Assume a cash sale of $10,000 during a company’s first month of operations and the related sales tax collected from the customer in the amount of $1,000 has not yet been remitted to the state. How will this transaction affect the company’s financial statements prepared on the last day of that month? (Select all that apply.)
Check All That Apply
A) Deferred revenue of $1,000 will be reported as a liability on the balance sheet.
B) Current liabilities in the amount of $1,000 will be reported on the balance sheet.
C) Sales revenue of $9,000 will be reported on the income statement.
D) Sales revenue of $10,000 will be reported on the income statement.
E) Sales revenue of $11,000 will be reported on the income statement.
Explanation / Answer
Answer B and C.
The explanation regarding this is as follows:
Total Sales : $10,000
Less: Sales tax collected included: $1,000
Net Sales revenue to be recognized:$9,000
As the sales tax has not yet been remitted to state, it will remain as liability of the business. Hence, the journal entry to record the above transaction is as follows:
Cash Account Dr. $10,000
Sales revenue Account $9,000
Sales tax Payable Account $1,000
Hence both B and C is correct, as the revenue is recognized as $9,000 and sales tax payable is a current liability of $1,000 to be remitted to state.
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