ACCA FA · Chapter 4 · Question 10 of 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?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Debit Sales returns $1,200; Debit Sales tax $240; Credit Receivables $1,440
Explanation
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.
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