Exercise 7-13B Effect of credit card sales on financial statements
Advanced Carpet Cleaning provided $76,000 of services during Year 1, its first year of operations. All customers paid for the services with major credit cards. Advanced Carpet submitted the credit card receipts to the credit card company immediately. The credit card company paid Advanced Carpet cash in the amount of face value less a 3 percent service charge.
Required
a. Show the credit card sales and the subsequent collection of accounts receivable in a horizontal statements model like the one shown next. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element is not affected by the event.
b. Answer the following questions:
- What is the amount of total assets at the end of the accounting period?
- What is the amount of revenue reported on the income statement?
- What is the amount of cash flow from operating activities reported on the statement of cash flows?
- Why would Advanced Carpet Cleaning accept credit cards instead of providing credit directly to its customers? In other words, why would Advanced Carpet be willing to pay 3 percent of sales to have the credit card company handle its sales on account?
Exercise 7-14B Recording credit card sales
Jung Company accepted credit cards in payment for $8,650 of services performed during March Year 1. The credit card company charged Jung a 4 percent service fee. The credit card company paid Jung as soon as it received the invoices.
Required
a. Prepare the general journal entry to record the service revenue.
b. Prepare the general journal entry for the collection of the receivable from the credit card company.
c. Based on this information alone, what is the amount of net income earned during the month of March?
Senior lecturer at University. 12+ years tutoring algebra and calculus..