Question

E13-5 (L01) (Adjusting Entry for Sales Tax) During the month of June, Rowling Boutique recorded cash sales of \(233,200 and credit sales of \)153,700, both of which include the 6% sales tax that must be remitted to the state by July 15.

Instructions

Prepare the adjusting entries that should be recorded to fairly present the June 30 financial statements.

Short answer

The sales revenue account is debited, and the sales tax payable account is credited with the same amount of $21,900 to record the transaction.

Step-by-step solution

Meaning of Adjusting Entries

Adjusting entries are those entries made to assign the right amount of revenue and expenses to each accounting period. An adjusting journal entry is an adjustment recorded at the end of an accounting period.

Adjusting entries for June 30 financial statements

Working notes:

Cash sales excluding sales tax = ($233,200 /106%) = $220,000

Credit sales excluding sales tax = ($153,700 / 106%) = $145,000

Sales tax = [($233,200 + $153,700) - $220,000 - $145,000]

= ($386,900 - $220,000 - $145,000)

= $21,900