Which journal entry records a cash sale of 1,200 including 20% VAT?

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Study for the AAT Level 2 Introduction to Bookkeeping Test. Use flashcards and multiple choice questions with hints and explanations. Prepare effectively for your exam!

Multiple Choice

Which journal entry records a cash sale of 1,200 including 20% VAT?

Explanation:
When recording a cash sale that includes VAT, you debit cash for the total amount received and credit the net sales revenue and the VAT payable (VAT Output). Here, the total is 1,200, with VAT at 20%. The net sale is 1,000 (1,200 divided by 1.20), and the VAT portion is 200. So the correct entry is: Dr Cash/Bank 1,200; Cr Sales 1,000; Cr VAT Output 200. Why this fits: VAT Output represents the tax you owe to the tax authority from the sale, so it’s a liability. The net sales figure is the actual revenue earned before tax. The other options either omit the VAT, misstate the net amount, or allocate too much or too little to VAT versus cash, which wouldn’t reflect the 20% VAT on the sale.

When recording a cash sale that includes VAT, you debit cash for the total amount received and credit the net sales revenue and the VAT payable (VAT Output). Here, the total is 1,200, with VAT at 20%. The net sale is 1,000 (1,200 divided by 1.20), and the VAT portion is 200.

So the correct entry is: Dr Cash/Bank 1,200; Cr Sales 1,000; Cr VAT Output 200.

Why this fits: VAT Output represents the tax you owe to the tax authority from the sale, so it’s a liability. The net sales figure is the actual revenue earned before tax. The other options either omit the VAT, misstate the net amount, or allocate too much or too little to VAT versus cash, which wouldn’t reflect the 20% VAT on the sale.

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