Simonic Retailers accepted $80,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales Revenue of $80,000 and a debit(s) to
A)Cash $76,800 and Service Charge Expense $3,200.
B)Accounts Receivable $76,800 and Service Charge Expense $3,200.
C)Cash $76,800 and Interest Expense $3,200.
D)Accounts Receivable $80,000.

Question

Quizplus · Accepted Answer

When Simonic Retailers accepts credit card charges, they receive the full amount of $80,000. However, Citibank charges a 4% service charge for the use of their credit card, which results in a $3,200 fee. To record this transaction, Simonic Retailers would credit Sales Revenue for $80,000 and debit Cash for $76,800 (the amount remaining after the service charge) and Service Charge Expense for $3,200. This represents the amount they received and the fee they paid for the use of the credit card. Option B, Accounts Receivable $76,800 and Service Charge Expense $3,200, would be incorrect because Simonic Retailers did not extend credit to the customer using the credit card, so there is no need to record an Accounts Receivable. Option C, Cash $76,800 and Interest Expense $3,200, would also be incorrect because Citibank is charging a service charge, not interest, for the use of their credit card. Option D, Accounts Receivable $80,000, would be incorrect because, again, Simonic Retailers did not extend credit to the customer using the credit card.

Simonic Retailers Accepted $80,000 of Citibank Visa Credit Card Charges