Barron Company accepts a credit card as payment for $2,400 of services provided to a customer. The credit card company charges a 5% handling fee for its collection services. Select the answer that shows how the entry to recognize the event would affect Barron's financial statements.

Question

Quizplus · Accepted Answer

When Barron Company accepts a credit card as payment for services, it recognizes revenue of $2,400. However, the credit card company charges a 5% handling fee, which Barron Company must pay. This fee is an expense of $120 that Barron Company will record. Therefore, revenue will increase by $2,400 and expenses will increase by $120. This results in a net increase to assets of $2,280 ($2,400 - $120 = $2,280). Therefore, all of the answers describe effects that will occur as a result of recognizing this event.

Barron Company Accepts a Credit Card as Payment for $2,400