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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

When credit sales are $325 plus sales tax of 5%, and there is a bank credit card fee of 3%, what is the debit to Bank Credit Card Expense?

  1. (a) $16.25
  2. (b) $10.24
  3. (c) $341.25
  4. (d) $331.01

To determine

Find the correct option, the option that indicates the correct amount of debit to Bank Credit Card Expense.

Explanation

Sale: Sale is an exchange transaction of merchandise wherein the seller transfers the ownership of asset or goods to buyer, for money.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare journal entry to record the sale transaction through bank credit card.

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
Cash331.01
Bank Credit Card Expense10.24
Sales325.00
Sales Tax Payable16.25
(Record credit card sale)

Table (1)

Description:

  • Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
  • Bank Credit Card Expense is an expense account. Since expenses and losses decrease equity, equity value is decreased, and a decrease in equity is debited.
  • Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
  • Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 1:

Compute sales tax payable amount.

Sales tax payable = Sales×Sales tax percentage= $325×5%= $16

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