Chapter 9, Problem 1QS

Credit card sales
Prepare journal entries for the following credit card sales transactions (the company uses the perpetual inventory system).

1. Sold $20,000 of merchandise, which cost $15,000, on MasterCard credit cards. MasterCard charges a 5% fee.
2. Sold $,000 of merchandise, which cost $3,000, on an assortment of bank credit cards. These cards charge a 4% fee.

To determine

Credit Card Sales:

Credit card sales refer to those sales, the payment of which is received through credit card from the customer.

Journal Entries:

Journal entries are used to record the transactions of an organization in a chronological order. Based on these journal entries, the amounts are posted to the relevant ledger accounts.

Accounting Rules for Journal Entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

To prepare:

Journal entries.

Answer to Problem 1QS

Solution:

Sale of merchandise on credit:

Date	Account Title and Explanation	Post ref.	Debit($)	Credit($)
	Cash		19,000
	Credit Card Expenses		1,000
	Sales			20,000
	(Record credit card sales less 5% fee.)

Table (1)

Explanation of Solution

• Cash account is an asset account and it record an increase, hence it is debited.
• Credit card expenses account is an expense account, it records an increase, and hence it is debited.
• Sales account is a revenue account, it records an increase, and hence it is credited.

Working note:

Given,
Sales are $20,000.
Credit card fee is 5%.

Calculation of credit card expenses,
$\begin{array}{c}\text{Credit}\text{card}\text{expense}=\text{Credit}\text{card}\text{charge}\times \text{Sales}\\ =5\%\times \$20,000\\ =\$1,000\end{array}$

Calculation of cash received,
$\begin{array}{c}\text{Cash}\text{received}=\text{Sales}-\text{Credit}\text{card}\text{expense}\\ =\$20,000-\$1,000\\ =\$19,000\end{array}$