When you give your customers the option to make purchases with credit cards, you will probably see an increase in sales. However, you will also have to make additional journal entries when you record these sales.

The following practice questions test you on the proper way to record sales and fees for credit card transactions.

Practice questions

  1. A company has credit card sales of $50,000, and the bank charges a 2% credit card fee. What is the correct journal entry to record this sale?

  2. A company processes $120,000 of credit card sales during a day. The bank fee for the credit cards is 3.5%. The entry to record the sales will include a credit to sales revenues of $120,000 and debits to

    A. accounts receivable $120,000

    B. cash $115,800 and interest expense $4,200

    C. accounts receivable $115,800 and credit card fees $4,200

    D. accounts receivable $115,800 and interest expense $4,200

    E. cash $115,800 and credit card fees $4,200

Answers and explanations

  1. Debit cash $49,000, debit credit card expenses $1,000, and credit sales revenues $50,000

    Credit card sales of $50,000 result in a credit (increase) to sales revenues of $50,000. The credit card fee equals ($50,000) (0.02) = $1,000 and should be recorded as a debit (increase) to credit card expense. The amount of cash received is the amount of the sales ($50,000) less the credit card fee ($1,000) and should be debited (increase) to cash.

  2. The correct answer choice is E.

    The amount of the credit card fee is calculated as the amount of credit card sales ($120,000) multiplied by the percentage fee (0.035), totaling $4,200. The next step is to calculate the amount of cash received. Do this by taking the amount of credit card sales ($120,000) less the amount of the fee ($4,200), totaling $115,800. Therefore, an entry needs to be recorded to increase cash (debit) $115,800 and to increase (debit) credit card fees $4,200.

If you need more practice on this and other topics from your accounting course, visit Dummies.com to purchase Accounting For Dummies! Featuring the latest information on accounting methods and standards, the information in Accounting For Dummies is valuable for anyone studying or working in the fields of accounting or finance.

About This Article

This article is from the book:

About the book authors:

Kenneth Boyd is the owner of St. Louis Test Preparation (www.stltest.net). He provides online tutoring in accounting and finance. Kenneth has worked as a CPA, Auditor, Tax Preparer, and College Professor. He is the author of CPA Exam For Dummies. Kate Mooney has been teaching accounting to both undergraduates and MBA students at St. Cloud State University since 1986, after earning her PhD from Texas A & M University. She is a licensed CPA in Minnesota and is a member of the State Board of Accountancy.

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