Understanding the Accounting Entry for Furniture Purchases

What is the correct entry for Stung after buying furniture for $8,000 with sales tax of $1,200?

• A. Furniture 9,200, Supplier 9,200
• B. Furniture 8,000, Sales tax 1,200, Supplier 6,800
• C. Furniture 8,000, Sales tax 1,200, Supplier 9,200
• D. Furniture 8,000, Supplier 8,000

Answer: (C)

When an entity like Stung purchases furniture with associated sales tax, the total cost incurred needs to be recorded correctly in the financial records. In this case, the furniture is purchased for $8,000, and there is an additional cost of sales tax amounting to $1,200. The total expenditure on the furniture, including sales tax, amounts to $9,200 ($8,000 + $1,200). In accounting, the cost of the asset, which in this case is furniture, should include all costs necessary to bring the asset to its intended use. Therefore, the furniture account is debited by the total of $9,200. The supplier account, which reflects the amount payable to the supplier, should also be credited by $9,200, representing the total payment due, including sales tax. It's important to note that the sales tax is not usually recorded as a separate liability unless the business has specific accounting policies on how it treats sales tax; typically, it forms part of the overall asset cost. Consequently, recording Furniture at $8,000 and Sales tax at $1,200 while crediting the Supplier for the total amount of $9,200 accurately reflects that Stung has acquired an asset

When you're immersed in the world of ACCA Financial Accounting (F3), understanding how to handle transactions correctly is vital. One key area that often trips up learners is how to account for purchases—especially when those purchases include additional costs like sales tax. So, let’s break this down together!

Imagine you're Stung, and you just bought some shiny new furniture for your office. The price tag? A cool $8,000. But wait! There's also sales tax to consider, which adds another $1,200 to the pot. Now, I bet you’re wondering—how do we record this transaction in our financial records?

Here’s the scoop: the total cost, which in this case is $9,200 (yup, that's $8,000 plus $1,200), is what you need to track. Why? Because accounting principles dictate that when you acquire an asset—like that fabulous furniture—you must account for all costs necessary to bring it to its intended use.

Now, let's delve into the choices provided and see what sticks. The correct entries would be;

• Furniture: $8,000

• Sales Tax: $1,200

• Supplier Account: $9,200

The options at first glance might confuse you, but once you break it down, the answer becomes crystal clear. Crediting the Supplier account at $9,200 reflects the total amount you owe, which includes that sneaky sales tax. It might seem tempting to separate it out, but typically, sales tax blends into the overall asset cost. Just a little accounting etiquette we all need to pay attention to!

Speaking of which, have you ever wondered why sales tax isn’t treated as a liability in these entries? It usually comes down to a business’s accounting policies. If you’re keeping things straightforward, most companies tend to embed these costs directly in the asset account instead of showing them separately. It simplifies matters and, let’s be honest, who doesn’t appreciate a little simplicity amid the complexities of accounting?

Now, what if you had opted to break it down further? Sure, you could list the sales tax separately, but that kind of detail often adds unnecessary clutter to your financial statements. It’s just another night of overthinking that can divert your attention from more essential matters, don’t you think?

So, to sum it up—any time you’re documenting a purchase like Stung’s furniture, think about the total cost: expenses, taxes, and all. Accurately reflecting those in your financial records is essential, especially as you prepare for your examinations.

And hey, as you continue to tighten your grasp on these concepts, remember that financial accounting isn’t just about numbers; it’s about telling a story. Your financial statements should narrate the journey of your resources—how they came in, what they’ve contributed, and, ultimately, how they’ve supported the growth of the business.

In a world where precision is key, mastering these entries will not only serve you well in your exams but also in real-world scenarios down the line. So here’s the takeaway: the next time you’re faced with a similar question, whether in the classroom or on an exam, you’ll know exactly how to journalize it with confidence!

Now, go ahead—dig into your studies further! You got this!