Indicate whether each of the following statements is true or false.________ a) A benefit of making credit card sales is that there is no cost to the merchant.________ b) A benefit of accepting credit cards is that increased sales may be generated.________ c) Recording a credit card sale increases total assets and increases total liabilities.________ d) Recording the collection of cash from the credit card company increases cash and increases revenue.________ e) The income statement is not affected at the time the cash receipt is recorded.

Question

What will be an ideal response?

Answer 1

a) F b) T c) F d) F e) T

a) This is false. The credit card company deducts its service fee from the gross amount of
the sale and pays the merchant the net balance (gross amount of sale less credit card fee) in cash.
b) This is true. Merchants who accept credit cards typically sell more than merchants who do not accept credit cards.
c) This is false. Recording a credit card sale increases the asset (accounts receivable-credit card company and increases stockholders' equity (retained earnings). It increases revenue for the full amount, less credit card expense.
d) This is false. The entry increases assets (accounts receivable-credit card company) and increases stockholders' equity (retained earnings). It increases revenue (service revenue) and increases expenses (credit card expense). Because the increase to revenue is greater than the increase to expense, it increases net income.
e) This is true. The income statement is affected when the credit card sale is recorded (see item d) rather than when the cash is collected from the credit card company.