Accounting Quiz: Debtors Creditors / Invoicing
The invoice amount inclusive of Sales Tax is $1,100. Let’s say that the sales tax in this case is 10%. What is the invoice amount excluding sales tax,
It is important to note that $1100 is the amount inclusive of sales tax, that is we have arrived at $1100 after adding 10% of sales tax to the price excluding sales tax.
Lets say if the price without sales tax is “y”
Then, we can reach at price including sales tax ($1100) by multiplying exluding sales tax price “y” with 110% or 1.10
y x 1.10 = $1100
y= 1100 / 1.10
Therefore the price excluding of sales tax has come to $1000. The correct answer is definitely C.
You can cross check by adding 10% to $1000, that will give you a price inclusive of sales tax that was mentioned in the question.