Question

Debit card payments in a sales invoice with regular terms of net 30 will -

a. debit the bank account instead of accounts receivable for the full invoice amount
b. credit the bank account instead of accounts receivable for the full invoice amount
c. reduce the bank deposit by the amount of the card transaction fees
d. withdraw the full invoice amount from the customer's bank account in 30 days when the net amount is due

Answer 1

In accounting for a sales invoice paid with a debit card, funds are debited from the customer's bank account immediately, so the bank account should be debited, not the accounts receivable. Debit card transactions are direct and immediate transfers of existing funds from the cardholder's account.

Step-by-step explanation:

When a sales invoice is paid using a debit card, the correct accounting treatment would be option (a), which is to debit the bank account instead of accounts receivable for the full invoice amount. This reflects the immediate transfer of funds from the customer's bank account to the business's bank account, thus settling the payment right away, rather than recording it as an amount to be received later (accounts receivable).

Unlike credit cards, where the amount spent is considered a short-term loan by the credit card company to the cardholder, debit cards draw on the funds already available in the cardholder’s bank account. This means that the funds are transferred immediately upon making a purchase, so the amount does not remain as an outstanding receivable for the seller.