Are financial statements prepared from unadjusted or adjusted trial balances?
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Are financial statements prepared from unadjusted or adjusted trial balances?
Fiancial statements are prepared after the adjusted trial balance.
During the month of June, Rowling Boutique had 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 entry that should be recorded to fairly present the June 30 financial statements.
Rowling Boutique
Financial Statement
June 30
Date Details Debit Credit
30-Jun Sales Tax $23,214
Sales Tax Payable $23,214
Cr Income tax Payable 23214
Dr Income tax 23214
CR Income tax 23214
Dr Profit and Loss a/c 23214
jahanzaib - way off. This is about sales tax, not income tax. Also not quite sure why you're putting a number in and out of "income tax."
setteamos - please start a new thread with your question. This is unrelated to the original post.
I may be interpreting this wrong, but it says those amounts "include" the 6% sales tax. To me, "include" means it's already included. (That is, the numbers would be 106%.) However, given it's a problem, it's hard telling what someone might mean by that - in real life we know what these numbers are and don't have to interpret sentences.
I am unsure as to why this should even need an adjusting entry at all. Both the sales and the tax should have been recorded at the time of the sale and there would be no adjusting entry. So I'm not quite sure what exactly you're supposed to be adjusting. Debiting sales tax doesn't make much sense to me, because it's not an expense of the company. It's collected from the customer at the time of the sale, put into the payable because it belongs to the state, and left there until paid. When paid, it comes back out because you're paying the liability.
Someone could do this another way, but without knowing what the original entry was, it's hard to say. I've never seen this done this way. If you could perhaps provide an example from your book on this, it might make some more sense.
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