8. Kenai Company sold $600 of merchandise to a customer who used a National Bank

Question

8. Kenai Company sold $600 of merchandise to a customer who used a National Bank credit card. National Bank deducts a 3% service charge for sales on its credit cards. Kenai electronically remits the credit card sales receipts to the credit card company and receives payment immediately. The journal entry to record the collection from the credit card company would be: A) Debit Cash of $618 and credit Accounts Receivable-National $618. B) Debit Cash of $618; credit Credit Card Expense $18 and credit Sales $600. C) Debit Accounts Receivable-National $582; debit Credit Card Expense $18 and credit Sales $600. D) Debit Cash $582; debit Credit Card Expense $18 and credit Sales $600.

Explanation / Answer

8. The answer is D.

For a normal sale transaction, where cash is collected immediately, the Entry is Debit Cash and Credit Sales.

In this case also, the company receives payment immediately from the credit card company against a payment of 3% fee on amount collected. This fee is not separately paid by Kenai Company to the comapny but is deducted from the amount collected from credit card sales.

So the amount that the company receives from the bank is net of the fees to be paid.

Fee = 3% of Credit Card Sales

Fee = ,03*600 = 18

Amount Recieved by the Company = Sales - Fee = 600 - 18 = 582

Sales = 600

Entry is

Cash A/c Dr. 582

Credit Card Expense A/c Dr. 18

To Sales A/c 600

Rationale behind the entry:

Cash is received - Debit Cash

Goods are sold - Credit Sales

Fees is an expense- Debit Fees

Related Questions

Navigate

• Browse (All)
• Browse 8
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.