During December, Far West Services makes a $2,000 credit sale. The state sales tax rate is 6% and the local sales tax rate is 2.5%. Record sales and sales tax payable. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Dr. Account Receivable $2,170

Cr. Sales tax Payable $170

Cr. Sales $2,000

Explanation:

Goods and Services are subject to taxes and these taxed are collected by the business from its customers on the behalf of the government. The tax is included in the invoices and recorded separately from the sales.

Credit sales = $2,000

Sales Tax = $2,000 x 6% = $120

Local sales tax = $2,000 x 2.5% = $50

Total Sales tax Payable = $120 + 50 = $170

Receivable amount = $2,000 + $120 + $50 = $2,170

Debit Accounts receivable $2170

Credit sales revenue $2000

Credit State tax $120

Credit Local tax $50

Explanation:

When sales are made on credit, the entries required are debit Accounts receivable and credit Sales revenue.

Considering the taxes, the entries would then be grossed by the tax percentage and the grossed amount is debited to accounts receivable while the taxes are credited to the tax payable account.

State tax

= 6% * $2,000

= $120

Local tax

= 2.5% * $2,000

= $50

Total receivable

= $2000 + $120 + $50

= $2170