Accounting Fundamentals Certification (AFC) Practice Test

To determine the total cash received for a sale on account, it's important to calculate the sale amount, apply the sales tax, and then factor in any discounts that may apply.

First, when the sale on account is $1,200, we need to add the 7% sales tax. The sales tax is calculated as follows:

\[ \text{Sales Tax} = \$1,200 \times 0.07 = \$84 \]

Next, we add the sales tax to the original sale amount:

\[ \text{Total Amount Before Discount} = \$1,200 + \$84 = \$1,284 \]

Since payment is made within the 2% discount period, we apply the discount to the total amount before tax, as discounts are applied to the sale price and not the tax. The 2% discount will be calculated on the original sale amount of $1,200:

\[ \text{Discount} = \$1,200 \times 0.02 = \$24 \]

Now, subtract the discount from the total amount before tax:

\[ \text{Total After Discount} = \$1,284 - \$24 = \$1,260 \]

However, the correct cash received takes into account the tax