Falon Company accepted a credit card account receivable in exchange for $50,000 of services provided to a customer. The credit card company charges a 3% service charge. Recording the service revenue and the service charge would
A) decrease expenses by $1,500.
B) increase assets by $50,000.
C) increase assets by $48,500.
D) decrease expenses by $1,500 and increase assets by $48,500.

Question

Quizplus · Accepted Answer

Accepting a credit card account receivable means that the company is essentially selling the account receivable to the credit card company in exchange for cash. Therefore, the company will receive $50,000 - 3% = $48,500. This is because the credit card company deducts a service charge of 3% from the face value of the account receivable. The $1,500 is an expense incurred by the customer, not the company. Therefore, the transaction would increase assets by $48,500.

Falon Company Accepted a Credit Card Account Receivable in Exchange