Question

June 26

All transactions that deal with a sale of cabinet components receive a 7% sales tax. Installation does not get a sales tax.

Record the sale of cabinet components with a list price of $4,200, plus sales tax, to customer Chad Hana. Included in the invoice are installation charges of 4 hours at $100 per hour.

Would I write this journal entry as:

DR Cash 4894.00

CR Cabinet Sales 4200.00

CR Installation Revenue 400.00

CR Sales Tax Payable 294.00

Answer 1

This is not a cash transaction, since it is not mentioned and the name of the customer is given. Therefore, this is an on-account transaction and accounts receivable should be debited.

Cabinet sale is $4,200 and sale tax should be calculated on this amount; (4200 × 7% =) $294.

Journal

Date	Account titles & explanation	P.ref	Debit	Credit
26/06	Accounts receivable		$4,894
	Cabinet sale			$4,200
	Installation revenue (4 × $100 =)			$400
	Sale tax payable			$294
	To record sale of cabinet with a charge of 7% sale tax, and installation.

Working:

Amount of accounts receivable = 4200 + 400 + 294 = $4,894