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Falon Company accepted a credit card account receivable in exchange for $50,000 of services provided to a customer
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.
Expert Solution
Correct answer: Option C) Increases assets by $48,500.
Explanation:
The journal entry is made below:
| General Journal | Debit | Credit |
| Cash ($50,000 - $1,500) | $48,500 | |
| Credit card expense ($50,000 * 3%) | $1,500 | |
| Service revenue | $50,000 |
As cash is debited with $48,500, assets also increase with $48,500.
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