ACCA FA · Chapter 4
Sales, purchases and sales tax MCQs with Answers
10 multiple-choice questions on Sales, purchases and sales tax for ACCA FA Financial Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A business registered for sales tax sells goods on credit for $4,800, including sales tax at 20%. Which journal correctly records the sale?
- A) Debit Receivables $4,800; Credit Revenue $3,840; Credit Sales tax $960
- B) Debit Receivables $5,760; Credit Revenue $4,800; Credit Sales tax $960
- C) Debit Receivables $4,800; Credit Revenue $4,800
- D) Debit Receivables $4,800; Credit Revenue $4,000; Credit Sales tax $800
Show answer & explanation
Answer: D) Debit Receivables $4,800; Credit Revenue $4,000; Credit Sales tax $800
The $4,800 is the gross (tax-inclusive) amount. Sales tax = $4,800 x 20/120 = $800, so revenue = $4,800 - $800 = $4,000. The receivable is the full $4,800 owed by the customer. Taking 20% of the gross amount ($960) is a common error because 20% applies to the net price.
Question 2
During a quarter, a business made sales of $180,000 excluding sales tax and purchases of $92,000 including sales tax. All items are subject to sales tax at 15%. How much sales tax is payable to the tax authority for the quarter?
- A) $39,000
- B) $27,000
- C) $13,200
- D) $15,000
Show answer & explanation
Answer: D) $15,000
Output tax = $180,000 x 15% = $27,000. Input tax on purchases (tax-inclusive) = $92,000 x 15/115 = $12,000. Amount payable = $27,000 - $12,000 = $15,000. Treating the purchases as tax-exclusive gives input tax of $13,800 and a payable of $13,200.
Question 3
At the start of a quarter, a business owed $3,400 sales tax to the tax authority and paid $3,100 of this during the quarter. During the quarter, output tax of $8,750 and input tax of $5,120 were recorded. What is the balance on the sales tax account at the end of the quarter?
- A) $14,170 payable
- B) $10,130 payable
- C) $3,930 payable
- D) $3,630 payable
Show answer & explanation
Answer: C) $3,930 payable
Closing balance = opening liability $3,400 - payment $3,100 + output tax $8,750 - input tax $5,120 = $3,930 payable. Assuming the opening balance was fully settled gives $3,630, while adding the payment instead of deducting it gives $10,130.
Question 4
On 1 June, a company sold goods with a list price of $6,000 to a credit customer. The customer receives a 10% trade discount and is offered a 3% settlement discount for payment within 10 days. At the date of sale the company expects the customer to take the settlement discount. Ignoring sales tax, at what amount should revenue initially be recognised under IFRS 15 Revenue from Contracts with Customers?
- A) $6,000
- B) $5,400
- C) $5,820
- D) $5,238
Show answer & explanation
Answer: D) $5,238
Trade discount is deducted first: $6,000 x 90% = $5,400. Under IFRS 15 a settlement discount is variable consideration, and because the customer is expected to take it, revenue (and the receivable) is recognised at the expected consideration: $5,400 x 97% = $5,238. If the customer later pays outside the discount period, the extra $162 is recognised as revenue at that point. $5,400 would be used only if the customer was not expected to take the discount, and $5,820 wrongly ignores the trade discount.
Question 5
How should a trade discount given to a customer be recorded in the ledger accounts?
- A) It is credited to a discount received income account
- B) It is not recorded separately; revenue is recorded at the price after the trade discount
- C) It is debited to a discount allowed expense account
- D) It is recorded as a deduction from receivables after the invoice has been paid
Show answer & explanation
Answer: B) It is not recorded separately; revenue is recorded at the price after the trade discount
Trade discounts are reductions in the list price given, for example, to regular or bulk customers. They are deducted on the face of the invoice and the sale is recorded at the net amount, so no separate discount account is used.
Question 6
A trader who is NOT registered for sales tax buys goods for resale for $2,000 plus sales tax at 20%. At what amount should the purchase be recorded?
- A) $1,600
- B) $2,400
- C) $1,667
- D) $2,000
Show answer & explanation
Answer: B) $2,400
A business that is not registered cannot reclaim input tax, so the sales tax is part of the cost of the goods. The purchase is recorded at $2,000 + ($2,000 x 20%) = $2,400. Only a registered business would record $2,000 and a separate sales tax receivable.
Question 7
Under IFRS 15 Revenue from Contracts with Customers, when should revenue be recognised?
- A) When (or as) a performance obligation is satisfied by transferring control of goods or services to the customer
- B) When the goods are manufactured
- C) When the customer pays in cash
- D) When the contract is signed
Show answer & explanation
Answer: A) When (or as) a performance obligation is satisfied by transferring control of goods or services to the customer
IFRS 15 requires revenue to be recognised when, or as, the entity satisfies a performance obligation by transferring control of a promised good or service to the customer. Payment timing does not determine recognition, and signing a contract or manufacturing goods does not on its own transfer control.
Question 8
How is the total of the net sales column of the sales day book posted to the general ledger?
- A) Debit Revenue, with the gross total credited to the payables control account
- B) Debit Revenue, with the gross total credited to the receivables control account
- C) Credit Revenue, with the gross total debited to the receivables control account
- D) Credit Revenue, with the gross total debited to the cash book
Show answer & explanation
Answer: C) Credit Revenue, with the gross total debited to the receivables control account
The sales day book lists credit sales invoices. Periodically the net total is credited to revenue, the sales tax total is credited to the sales tax account, and the gross total is debited to the receivables control account, because customers now owe that amount.
Question 9
The following information relates to a business for a year: Opening inventory $14,200 Purchases $86,500 Carriage inwards $1,900 Carriage outwards $2,300 Purchase returns $3,100 Closing inventory $16,800 What is the cost of sales?
- A) $82,700
- B) $80,800
- C) $85,000
- D) $88,900
Show answer & explanation
Answer: A) $82,700
Cost of sales = $14,200 + $86,500 + $1,900 - $3,100 - $16,800 = $82,700. Carriage inwards is part of the cost of purchases, whereas carriage outwards is a distribution cost and is excluded. Including carriage outwards gives $85,000 and adding the returns instead of deducting them gives $88,900.
Question 10
A business registered for sales tax issues a credit note to a credit customer for goods returned with a net value of $1,200. Sales tax is 20%. What is the correct double entry?
- A) Debit Receivables $1,440; Credit Sales returns $1,200; Credit Sales tax $240
- B) Debit Sales returns $1,440; Credit Receivables $1,440
- C) Debit Sales returns $1,200; Credit Sales tax $240; Credit Receivables $960
- D) Debit Sales returns $1,200; Debit Sales tax $240; Credit Receivables $1,440
Show answer & explanation
Answer: D) Debit Sales returns $1,200; Debit Sales tax $240; Credit Receivables $1,440
The return reverses part of the original sale. Sales returns are debited with the net $1,200, the output tax previously charged is reduced by debiting sales tax with $1,200 x 20% = $240, and the customer's balance is reduced by the gross $1,440.