SAP FI 4.

6 Exercises
Financial Accounting - Chapter 29 Appendix 1. Sales & Use Tax
Assumptions
• Sales Tax rate = 10%
• Usage Tax rate = 10%
• On a daily basis, each company collects the taxes on behalf of the government. At the end of
the month, the companies remit the amount collected to the government.

Players
• Company A
• Company B
• Company C
• Government
• End User

Scenario
Company B
Details of Scenario Accounting for the transactions
Step 1. Purchased $1000 worth of raw
material from Company A, which is used Raw Material Inventory $1,100
in the process of the firm’s product. Vendor $1,100

Step 2.
Raw material in processes an end product
is made ready for resale. This created Finished Goods Inventory $1,000
five finished goods units WIP $1,000

Step 3.
Sold five finished goods items for $1 600 A/R - Company B $8,800
a piece to company C Tax charged Payable $ 800
Revenue $8,000
Step 4.
Tax Reconciliation prepared for Tax remitted to Government <$ 800>
remittance to government

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©Copyright PricewaterhouseCoopers LLP, 1998.

Page 1 March 4, 2011

SAP FI 4.6 Exercises
Financial Accounting - Chapter 29 Appendix 1. Sales & Use Tax
Company C
Details of Scenario Accounting for the transactions
Step 1. Purchased $8000 worth of
material, which is used to manufacture Input Inventory $8,800
the firm’s product. Vendor $8,800

Step 2. Materials processed to produce Finished Goods Inventory $10,000

100 units of finished goods WIP $10,000

Step 3. Sold 20 units of finished goods A/R - End User $3,300

items for $ 3 000 Tax charged Payable $ 300
Revenue $3,000

Step 4. Tax Reconciliation prepared for Tax remitted to Government <$ 300>
remittance to government

End User
Details of Scenario Accounting for the transactions
Step 1. The End User purchases 20 units Purchases $3 300
from Company C for $3 000 Vendor $3 300

Step 2. Consumes product

Government

No Tax Remitted
Remit $800 or Received to/
Remit $100 Receive $ 300 from Government

Company A Company B Company C End User

Net Government Accounting

Duplication or distribution Position
of this material in any form to client personnel is strictly forbidden.
©Copyright PricewaterhouseCoopers LLP, 1998.
Remittance $ 100
Remittance Page 2 $ 800 March 4, 2011
Remittance $ 300
$1,200
SAP FI 4.6 Exercises
Financial Accounting - Chapter 29 Appendix 1. Sales & Use Tax

Note: Sales and Usage tax is generally fully expensed, thus the sales and usage tax charged
and submitted to the government is based completely on the sales dollars and not on the
value added portion. Since the tax is fully expensed, the corporate income tax paid for the
year will be less than what was paid had the sales and usage tax been reclaimable up front.

Duplication or distribution of this material in any form to client personnel is strictly forbidden.
©Copyright PricewaterhouseCoopers LLP, 1998.

Page 3 March 4, 2011