Question

Barron Company accepts a credit card as payment for $1,200 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.

a. Assets will increase by $1,140.
b. Revenue will increase by $1,200.
c. Expenses will increase by $60.
d. All of the answers describe effects that will occur as a result of recognizing this event.

Answer 1

Option (d) is correct.

Step-by-step explanation:

Given that,

Services provided = $1,200

Handling fee = 5%

The Journal entry is as follows:

Cash A/c Dr. $1,140

Handling charges or Commission Expense A/c Dr. $60

To Sales Revenue $1,200

(To record the amount received for services provided earlier)

Workings:

Cash received = Sales revenue - Handling charges

= $1,200 - (5% × $1,200)

= $1,200 - $60

= $1,140

Therefore, the assets increases by $1,140 in the form of cash, the revenue will increases by $1,200 and the expenses increases by $60.