To calculate the sales tax that is included in a company's receipts from items subject to sales tax, divide the receipts by 1 + the sales tax rate. For example, if the sales tax rate is 6%, divide the total amount of receipts by 1.06. If the sales tax rate is 7.25%, divide the total receipts by 1.0725.
Let's illustrate this technique by assuming that a vending machine contains only items that are subject to a sales tax of 7%. For a recent month the vending machine receipts were $481.50. This $481.50 includes the amounts received for sales of product and for the sales tax on these products. A little algebra will allow us to calculate how much of the $481.50 is the true sales amount and how much is the sales tax on the products sold.
Let S = the true sales of products (excluding the sales tax), and let 0.07S = the sales tax on the true sales. Since the true sales + the sales tax = $481.50, we can state that S + 0.07S = $481.50. Next we combine the terms and have 1.07S = $481.50. We solve for S by dividing $481.50 by 1.07. Hence the amount of true sales is $450. The 7% of sales tax on the true sales is $31.50 ($450 X 0.07). Now let's prove these amounts: $450 of sales + $31.50 of sales tax = $481.50, the total amount of receipts from the vending machine.
Let's try another example. If the total amount of receipts including a 7% sales tax is $32,100, the true sales amount will be $30,000 ($32,100 divided by 1.07). The sales tax on the true sales will be 0.07 X $30,000 = $2,100. Our proof is $30,000 of sales + $2,100 of sales tax = $32,100. The accounting entry in general journal form it will be: debit Cash $32,100; credit Sales $30,000; credit Sales Tax Payable $2,100.
Let's first define expected net receipts. These are future receipts after deducting any related payments. For example, if you are likely to receive $1,200 one year from today, but will have to pay a fee of $200 at the time of the receipts, the expected net receipts will be $1,000.
Often we need to know the present value of amounts expected in the future. We calculate the present value by discounting the future amounts. In this situation discounting means 1) removing a specified amount of interest, or 2) adjusting for the time value of money. The concept is that receiving $1,000 in the future is less valuable than receiving $1,000 today.
If we assume that the time value of money is 10% per year, a net receipt of $1,000 one year from today will have a present value of $909. In other words, we discounted the future value of $1,000 by $91. With a time value of money of 10%, the $909 can be invested today and will grow by $91 ($909 x 10%) to be $1,000 in one year. Receiving a net amount of $1,000 in two years will have a present value of only $826. The reason is that $826 invested today at a compounded rate of 10% will grow to $1,000 in two years. If all amounts are certain, you will be in the same position whether you have $826 today or you receive $1,000 in two years.
The total asset turnover ratio indicates the relationship of net sales for a specified year to the average amount of total assets during the same 12 months.
Let's assume that during a recent year a corporation had net sales of $2,100,000 and its total assets during the same 12 month period averaged $1,400,000. The company's total asset turnover for the year was 1.5 (net sales of $2,100,000 divided by $1,400,000 of average total assets).
This ratio will vary by industry, as some industries are more capital intensive than others. Always compare your company's financial ratios to the ratios of other companies in the same industry.
What is a special journal?
Special journal meaning: A special journal (also known as a specialized journal) is useful in a manual accounting or bookkeeping system to reduce the tedious task of recording both the debit and credit general ledger account names and amounts in a general journal.
For example, one special journal is the sales journal which is used exclusively for a company’s sales of merchandise to customers that are allowed to pay at a future date. The sales journal will have only one column in which to enter the amount of each sales invoice. At the end of the month the total of the column is debited to Accounts Receivable and credited to Sales. Throughout the month, the individual sales invoices will be posted to each customer’s record found in the company’s subsidiary ledger for Accounts Receivable.
The benefits of using a special journal instead of the general journal for the repetitive transactions have been eliminated with today’s inexpensive yet powerful accounting software. For example, when a sales invoice is prepared by using accounting software, both the general ledger and subsidiary accounts will be updated instantly and accurately.
Special journal examples: The following are examples of special journals that are more efficient than recording transactions in the general journal used in a manual accounting system:
· Cash disbursement journal for recording checks written.
· Cash receipts journal for recording money received.
· Sales journal for recording sales on credit. (Cash sales are recorded in the cash receipts journal.)
· Purchases journal for recording purchases on credit of goods to be resold. (Cash purchases are recorded in the cash disbursement journal. Purchases of items such as equipment are recorded in the general journal.)
NPV is the acronym for net present value. Net present value is a calculation that compares the amount invested today to the present value of the future cash receipts from the investment. In other words, the amount invested is compared to the future cash amounts after they are discounted by a specified rate of return.
For example, an investment of $500,000 today is expected to return $100,000 of cash each year for 10 years. The $500,000 being spent today is already a present value, so no discounting is necessary for this amount. However, the future cash receipts of $100,000 for 10 years need to be discounted to their present value. Let's assume that the receipts are discounted by 14% (the company's required return). This will mean that the present value of the those future receipts will be approximately $522,000. The $522,000 of present value coming in is compared to the $500,000 of present value going out. The result is a net present value of $22,000 coming in.
Investments with a positive net present value would be acceptable. Investments with a negative net present value would be unacceptable.