Week 11 — Answer Key

Sales Tax & Compliance (Return to Syllabus)

Instructor Version — Detailed Answers for Taxability, Calculations, Journal Entries & Reconciliation

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Concept 1

Core Sales Tax Concepts — Answer Key

Sales tax: A consumption tax collected by the business on behalf of the government.

Sales Tax Payable: A liability account; tax collected is not income.

Students must identify the bookkeeper’s role: correct setup, tracking, reporting, and documentation retention.

Concept 2

Taxable vs. Non-Taxable Sales — Answer Key

Transaction	Taxable?	Explanation
Clothing retail sale	Yes	Most physical goods taxable.
Consulting service	No	Many states exempt services.
Sale to nonprofit	Exempt	Certificate required.
Sale to reseller	Exempt	Requires resale certificate.
Basic groceries	No	Often exempt by statute.

Concept 3

Invoice Sales Tax Calculation — Answer Key

Scenario: 850 taxable, 150 non-taxable, tax rate 7.75%

Calculation:

Taxable base = 850
Tax = 850 × 0.0775 = 65.88
Total invoice = 1,065.88

Concept 4

Journal Entries — Model Answers

A. Taxable Sale

Accounts Receivable ..................... Dr 540
    Sales Revenue ............................. 500
    Sales Tax Payable .......................... 40

B. Collection

Cash ..................................... Dr 540
    Accounts Receivable ........................ 540

C. Paying Sales Tax

Sales Tax Payable ........................ Dr 40
    Cash ....................................... 40

Concept 5

Sales Tax Reconciliation — Answer Key

Expected tax: 12,000 × 7.5% = 900

GL Sales Tax Payable: 875

Difference: 25 under-accrued

Possible causes:

Rounding differences
Credit memos issued later
Taxable items marked incorrectly
Missing or incorrectly posted sales

Concept 6

Exemption Certificates — Answer Key

Students must state:

Certificates must be valid and stored.
Missing documentation = sale becomes taxable during audit.
High audit risk if records incomplete.

Concept 7

Sales Tax Filing Summary — Example

Gross Sales: 30,000

Exempt Sales: 5,000

Taxable Sales: 25,000

Tax Rate: 8.25%

Tax Due: 25,000 × 0.0825 = 2,062.50

Discussion

Discussion Prompt — Model Answer

Treating sales tax as revenue can cause legal and financial trouble. States may impose penalties, interest, and back taxes for incorrect filings. Missing exemption certificates increases audit exposure and results in assessed tax.

Summary

Week 11 Summary — Instructor Version

Students should now understand how to classify taxable vs. exempt sales, compute tax correctly, record sales tax liability, reconcile it, and prepare accurate reporting data. This foundation is critical for audit readiness and compliance.