1. Chapter 11: accounting for sales tax
Learning outcomes:
Calculate sales tax
Prepare accounting entries for sales tax
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2. Introduction As registered business they must:
Charge sales tax on sales(also known as output tax)
Suffer sales tax on purchases (also known as input tax)
Pay to the tax authorities the difference between the sales tax collected and the sales tax paid to suppliers. Payments are usually made at quarterly intervals
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3. Adjustment to sales tax
Some businesses with more complex VAT structures may make purchases for which some of the input sales tax is recoverable, and some is irrecoverable from the tax authority, eg see sections on partial exemption and irrecoverable sales tax
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4. Sales tax control account
A separate nominal account is used for this purpose, known as the sales tax control account. The purpose of this account is to record the sales tax owed to the tax authorities and the sales tax due from the tax authorities.
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5. Sales tax control account
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6. Presentation in the financial statement
In the financial statement sales on credit (outstanding from customers all the year end) are shown as :
Receivables ledger control account Gross Amount
Sales tax Sales tax
Sales Net amount
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7. Accounts Receivable Cash Discounts Inducements for prompt payment
Recognition of Accounts Receivable
Cash Discounts
(Sales Discounts)
Inducements for prompt payment
Gross Method vs. Net Method
Payment terms are 2/10, n/30

8. Accounts Receivable Cash Discounts (Sales Discounts) Illustration 7-5
Entries under Gross and
Net Methods of Recording
Cash (Sales) Discounts

9. Accounts Receivable
E7-5: On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of £2,000 with terms of 2/10, n/60, f.o.b. shipping point. On June 12, the company received a check for the balance due from Arquette Company. Prepare the journal entries on Bolton Company books to record the sale assuming Bolton records sales using the gross method.
June 3
Accounts receivable 2,000
Sales 2,000
June 12
Cash 1,960
Sales discounts (£2,000 x 2%) 40
Accounts receivable ,000

10. Accounts Receivable
E7-5: On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of £2,000 with terms of 2/10, n/60, f.o.b. shipping point. On June 12, the company received a check for the balance due from Arquette Company. Prepare the journal entries on Bolton Company books to record the sale assuming Bolton records sales using the net method.
June 3
Accounts receivable 1,960
Sales 1,960
June 12
Cash (£2,000 x 98%) 1,960
Accounts receivable ,960
LO 4 Explain accounting issues related to recognition of accounts receivable.

11. Accounts Receivable
E7-5: On June 3, Bolton Company sold to Arquette Company merchandise having a sale price of £2,000 with terms of 2/10, n/60, f.o.b. shipping point. Prepare the journal entries on Bolton Company books to record the sale assuming Bolton records sales using the net method, and Arquette did not remit payment until July 29.
June 3
Accounts receivable 1,960
Sales 1,960
June 12
Cash 2,000
Accounts receivable ,960
Sales discounts forfeited 40
LO 4 Explain accounting issues related to recognition of accounts receivable.