Assume a cash sale of 10000 during a companys first month of

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.

Solution

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.