(a)
Credit card sales
Credit card is an electronic card, which allows the credit card holders to buy something on credit conveniently, and without paying immediate cash.
Businesses allow customers to buy its products through bank credit cards, such sales are termed as credit card sales. For such convenience, bank charges some percentage as service charge expense on the total value of goods or services purchased on credit.
Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.
Sale of receivables to a factor:
Receivables can be liquidated by selling the receivables to a factor such as financial institutions or bankers by losing some percentage of receivables as fees (Service charge expense), before its maturity period. Factors will collect cash on receivables directly from the respective customers at its maturity.
To prepare: The
(b)
To prepare: The journal entry in the books of Company M to record the sale of accounts receivable.
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Chapter 8 Solutions
Financial Accounting
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