A business commenced with capital in cash of $ 3,000. Inventory costing $2,400 plus sales tax is purchased on credit, and half is sold for $3,000 plus sales tax, the customer paying in cash at once. The sales tax rate is 10%.
What would the accounting equation after these transactions show?
Answer
$
Assets
Opening cash ………………………………3,000
Cash received $(3,000 + 300 sales tax)…3,300
Closing cash………………………………6,300
Inventory $(2,400 – 1,200) …………….1,200
Total Assets…………………………….7,500
Liabilities
Opening liabilities –
Sales tax payable $(300 – 240)……………60
Trade payable $(2,400 + 240 sales tax)…2,640
Closing liabilities ……………………….2,700
Capital
Opening capital……………………………….3,000
Profit on sale of inventory $(3,000 – 1,200)..1,800
Closing capital………………………………4,800