{"id":191342,"date":"2025-02-14T19:30:38","date_gmt":"2025-02-14T19:30:38","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=191342"},"modified":"2025-02-14T19:30:40","modified_gmt":"2025-02-14T19:30:40","slug":"cantrell-company-is-required-by-law-to-collect-and-remit-sales-taxes-to-the-state","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/14\/cantrell-company-is-required-by-law-to-collect-and-remit-sales-taxes-to-the-state\/","title":{"rendered":"Cantrell Company is required by law to collect and remit sales taxes to the state"},"content":{"rendered":"\n
Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $12,500 of cash sales that are subject to an 10% sales tax, what is the journal entry to record the cash sales? Multiple Choice O Debit Accounts Receivable $13,750; credit Sales $12,500; credit Sales Taxes Payable $1,250. Debit Cash $13,750; credit Sales $12,500; credit Sales Taxes Payable $1,250. Debit Sales Taxes Payable $1,250; debit Cash $11,250: credit Sales $12,500. Debit Cash $12,500; credit Sales $12,500; and record the taxes when paid. Debit Cash $12,500; credit Sales $11,250; credit Sales Taxes Payable $1,250.<\/p>\n\n\n\n
The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n
When Cantrell Company makes cash sales, it is required by law to collect sales tax from customers and remit it to the state. The total amount received from customers includes both the actual sales revenue and the sales tax. Let’s break down the accounting entry:<\/p>\n\n\n\n
\n
Sales Revenue Calculation:<\/strong>\n
\n
The business has $12,500<\/strong> in cash sales.<\/li>\n\n\n\n
This amount represents the price of goods or services sold before tax.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
Sales Tax Calculation:<\/strong>\n
\n
The state requires a 10%<\/strong> sales tax to be collected.<\/li>\n\n\n\n
This amount is not revenue but a liability because it must be remitted to the state.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
Total Cash Collected:<\/strong>\n
\n
Since the customers pay both the sales amount and the sales tax, the total cash received = $12,500 (sales) + $1,250 (sales tax) = $13,750<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n
Journal Entry:<\/strong>\n
\n
Debit Cash<\/strong> for the total amount received: $13,750<\/strong><\/li>\n\n\n\n
Credit Sales<\/strong> for the actual revenue earned: $12,500<\/strong><\/li>\n\n\n\n
Credit Sales Taxes Payable<\/strong> for the collected tax amount: $1,250<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ol>\n\n\n\n
The sales taxes payable account represents a liability because Cantrell Company is only holding the money temporarily before it is paid to the government.<\/p>\n\n\n\n
Why Other Answers Are Incorrect:<\/strong><\/h3>\n\n\n\n
\n
“Debit Accounts Receivable” option<\/strong> is incorrect because the transaction is for cash sales, not credit sales.<\/li>\n\n\n\n
“Debit Cash $12,500” options<\/strong> ignore the sales tax, which must be accounted for at the time of the sale.<\/li>\n\n\n\n
“Debit Sales Taxes Payable” option<\/strong> wrongly records a liability decrease, which should only happen when the tax is remitted to the state.<\/li>\n<\/ul>\n\n\n\n
This journal entry ensures accurate financial reporting and compliance with tax regulations.<\/p>\n\n\n\n
Here is the generated image of an accountant recording a journal entry for a retail store. Let me know if you need any modifications!<\/p>\n\n\n\n<\/figure>\n","protected":false},"excerpt":{"rendered":"
Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $12,500 of cash sales that are subject to an 10% sales tax, what is the journal entry to record the cash sales? Multiple Choice O Debit Accounts Receivable $13,750; credit Sales $12,500; credit Sales Taxes Payable $1,250. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-191342","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/191342","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=191342"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/191342\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=191342"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=191342"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=191342"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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