Hammer Hardware sold goods to James Brown on credit at a price of $2,750.00 including GST. What is the correct accounting entry to record the sales revenue in Hammer Hardware’s books?Group of answer choicesDebit Accounts Receivable $2,750; credit Sales $2,750.Debit Accounts Receivable $2,750; credit Sales $2,500; credit GST Collections $250.Debit Accounts Receivable $2,500; credit Sales $2,500.Debit Accounts Receivable $2,500; debit GST Collections $250; credit Sales $2,750.
Question
Hammer Hardware sold goods to James Brown on credit at a price of 2,750; credit Sales 2,750; credit Sales 250.Debit Accounts Receivable 2,500.Debit Accounts Receivable 250; credit Sales $2,750.
Solution
The correct accounting entry to record the sales revenue in Hammer Hardware’s books is:
Debit Accounts Receivable 2,500; credit GST Collections $250.
Here's why:
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When a sale is made on credit, the Accounts Receivable account is debited because this represents the amount of money that the customer owes to the business. In this case, James Brown owes Hammer Hardware $2,750, so Accounts Receivable is debited for this amount.
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The Sales account is credited for the amount of the sale excluding GST. In this case, the sale amount excluding GST is $2,500, so Sales is credited for this amount.
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The GST Collections account is credited for the amount of GST collected on the sale. In this case, the GST collected is 2,750 - $2,500), so GST Collections is credited for this amount.
So, the correct journal entry is:
Debit Accounts Receivable $2,750
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