Question

Problem 7-4A Credit card and debit card transactions LO5

On September 5, Maria Smith, owner of Super Gym Personal Service, provided personal training services to customers for cash of $3,500. Services of $9,000 were billed to corporate clients, terms 2/10, n/30. In the gym Maria uses a Square card reader that attaches to her iPhone, and other services totalling $18,000 were recorded on September 20 for customers using MasterCard (assume a 3.25% fee). On September 25, sales of $7,000 were made to debit card customers, also using the Square reader on her phone. The bank charges Maria a flat fee of 0.75% on all debit card transactions.

Required Prepare journal entries for each of the transactions described.

Analysis Component: Identify the advantages and disadvantages of each type of sale: cash sale, credit sale, credit card sale, or debit card sale. Explain why Maria would likely accept all these types of payment.

Answer 1

Sale through master card and square card reader :
$18,000 for 3.25%
($18,000/3.25)*100	$ 5,53,846.15

	Particulars		Debit	Credit
1	CASH A/c	Dr	$      3,500.00
	To Revenue			$      3,500.00
	( Being amount received on Cash Sales)
2	Bank A/c	Dr	$ 5,53,846.15
	To Revenue			$ 5,53,846.15
	( Being amount received on Sales Through Master Card & Square card reader)
3	Electronic charges A/c Dr	Dr	$    18,000.00
	To Bank A/c			$    18,000.00
	( Being Amount of electronic Charges for using Square card reader & other services i.e 3.25% of the sale )
4	Bank A/c	Dr	$      8,820.00
	Discount A/c	Dr	$         180.00
	To Revenue A/c			$      9,000.00
	( Being amount paid through the corporate client is assumed that payment made with in 10 days and accepted a discount of 2% on the payment)
	9000*2%=180/-
5	Bank A/c	Dr	$      7,000.00
	To Revenue			$      7,000.00
	( Being Sale Using Debit Card)
6	Bank Charges A/c Dr		$           52.50
	To Bank A/c			$           52.50
	( Being Bank Charges @0.75%)

advantages and disadvantages of each type of sale

	Payment type: CASH
	Cash is King” has always been the rule of thumb, but even this King has weaknesses. Cash is instant gratification; you receive the money, and it’s yours unless they return the item, but even then you can offer store credit instead of cash in hand. Let’s take a look at the almighty dollar
	Advantages of Cash:
1	Instant money in hand, except taxes of course.
2	There are no transaction fees with cash like there are with credit cards
3	Minimizes bookkeeping, which means less stress & less hassle
	Disadvantages of Cash:
1	Money in the drawer can be tempting for some employees to steal
2	A safe needs to be on site or frequent trips to the bank for deposits must be made, which takes time and money.
3	Money at your location increases your risk for theft not just from employees but criminals as well.
	Payment type: credit Card sale
	Advantages of credit cards:
1	credit cards Accepting boost sales. Credit cards are becoming the most common method of payment, and your customers expect the ability to pay by credit card at any location. Studies show consumers who pay with a credit card spend more than if they were paying with cash. Who doesn’t love a good “impulse buy?”
2	Accepting credit cards increase cash flow. Credit card transactions are deposited directly into your account, no need to head to the bank. As a general rule, a reputable processor should have your funds deposited within 24 – 48 hours after settling out the payments
3	Accepting credit cards creates legitimacy. Customers see those credit card logos on your door, the brands they trust that are in their wallet, and strangely enough, there is a transference of confidence to your business.
	Disadvantages of credit cards:
1	Credit Cards can add another level of difficulty to bookkeeping and accepting credit cards can be an added monthly expense in most cases. Surcharging products can alleviate the costs associated with credit card acceptance
2	Credit cards do come with risks such as chargebacks and fraud.
3	Refunds on credit cards are not immediate. While a credit card transaction may take seconds, the reversal or refund is not nearly as fast. Many steps are involved in issuing refunds, the general rule of thumb for a refund to be processed on a credit card is 2-30 days depending on many factors.
	Payment type: Debit Card sale
	Advantages of Debit cards:
1	The amount will be directly deposited into ur account if the Customer have no balance can reflect immediately
	Disadvantages of Debit cards
1	The Person having debit card will lower there Expense that means he cant have credit facitlity he need to Pay from savings which effect many persons. Which Leads to lower customers
	Payment type: Credit sale
	Advantages of Credit sale
1	2/10 net 30, defined as the Trade Credit in which clients can opt to either receive a 2 percent Discount for payment with in 10days or pay the full amount (net) of their amount payable with in 30days
2	The fact that lack of cash is one of the main reasons businesses fail makes these terms commonplace. Businesses love to offer 2/10 net 30 for 2 reasons: it makes customers happy while speeding up cash cycles
	dis-Advantages of Credit sale
1	There can Occur Bad debts