Tony Company has an agreement with a major credit card company that calls for ca
ID: 2447857 • Letter: T
Question
Tony Company has an agreement with a major credit card company that calls for cash to be received immediately upon deposit of Tony customers' credit card sales receipts. The credit card company receives 2.50% of card sales as its fee. If Tony has $5,000 in credit card sales, which of the following statements are true?
Tony debits Cash $5,000
Tony debits Accounts Receivable Credit Card Co $4,875
Tony debits Accounts Receivable Credit Card Co $5,000
Tony credits Sales $4,875
Tony debits Cash $4,875
Explanation / Answer
The correct answer is option E = Tony debits Cash $4,875.
Reason: Option A is incorrect as $5,000 will not be received by us, after deducting for commission we will only get $4,875 hence it is incorrect.
Option B and C are also incorrect as we will not debit account receivables as we are immediately receiving cash upon deposit of customer’s credit card sales receipts.
Option D is incorrect because sales will be credited for the amount of $5,000.
I hope my solution solves your query.