Question

1)(3shouled 4Ashley Dreher is confused about how a retail company should record a credit card sale. She thinks it does not matter if the customer used a bank credit card, a nonbank credit card, or a company credit card-the retail company should always debit Accounts Receivable because the cus- tomer is not paying in cash. Is Ashley correct? Explain.

Answer 1

Answer

Ashley is wrong. If the customer is paying using credit card , the company should

1). Debit Cash a/c and credit sales if there is an immediate payment by the credit card company or

2). In case of delayed payment, She should debit the accounts receivable and credit the sales a/c and later on debit cash and credit accounts receivable, when the payment is received.

(Any credit card expense charged by credit card company should be debited to credit card expense account and only the balance should be debited to Cash a/c.)

The treatment depends on when the payment is received by the retail company.  It doesnot matter what type of card is used by the customer to pay the retail company or if he pays in physical cash or directly to the bank.

The treatment is solely based on when the payment is received by the retail company.