Question

question 4 of 6
a customer returns merchandise
and is issued a cash refund of
$56.18. assuming the customer
lives in a state where sales tax is
6%, what is the journal entry used
to record this return?

Explanation:

Step1: Calculate the sales amount before tax

Let the sales amount before tax be \(x\). The total refund amount (\(x + 0.06x\)) is \(\$56.18\). So, \(x(1 + 0.06)=56.18\), which gives \(x=\frac{56.18}{1.06}\).

$$x = 53$$

Step2: Calculate the sales tax amount

Sales tax amount \(=56.18 - 53=\$3.18\)

Step3: Determine the journal - entry accounts

When a customer returns merchandise and gets a cash refund:

• Sales Returns and Allowances (a contra - revenue account) is debited for the sales amount before tax (\(\$53\)).
• Sales Tax Payable (a liability account) is debited for the sales tax amount (\(\$3.18\)).
• Cash (an asset account) is credited for the total refund amount (\(\$56.18\))

Answer:

Debit Sales Returns and Allowances \(\$53\), debit Sales Tax Payable \(\$3.18\), credit Cash \(\$56.18\)