Colaw Stores Accepts Its Own And National Credit Cards

Colaw Stores Accepts Both Its Own And National Credit Cards During

10colaw Stores Accepts Both Its Own And National Credit Cards During

10Colaw Stores accepts both its own and national credit cards. During the year, the following selected summary transactions occurred: On January 15, sales totaling $18,000 were made using Colaw credit cards with no prior balances. On January 20, Visa credit card sales totaling $4,500 were made, incurring a 2% service charge fee. On February 10, $10,000 was collected on Colaw credit card sales. On February 15, finance charges of 1.5% were added to Colaw credit card account balances.

Paper For Above instruction

In this paper, we will analyze and journalize the transactional accounting entries for Colaw Stores concerning credit card sales and payments, along with processing finance charges. Proper recording of these transactions ensures compliance with accounting standards and accurate financial reporting.

Journalizing January 15 – Colaw Credit Card Sales

On January 15, Colaw Stores recorded credit card sales totaling $18,000 made through its own credit card. The journal entry involves debiting Accounts Receivable or a specialized Credit Card Receivable account and crediting Sales Revenue. Since this transaction involves sales made on credit, it reflects revenue earned and a receivable due from the credit card processor.

Journal Entry:

Date: January 15


Debit: Accounts Receivable — Colaw Credit Card  $18,000


Credit: Sales Revenue                                      $18,000

This entry recognizes the revenue from sales made via Colaw credit card, establishing a receivable from the credit card company.

Journalizing January 20 – Visa Credit Card Sales with Service Charges

On January 20, sales of $4,500 were made through Visa credit cards, which involve a 2% service charge fee. To record this, the company must recognize the gross sales and then account for the service fee separately. The net amount received after the fee will be recorded upon collection.

First, record the credit sale:

Date: January 20


Debit: Accounts Receivable — Visa                   $4,500


Credit: Sales Revenue                                   $4,500

The company will later recognize the service charge expense when the payment is received or paid.

When the company receives the payment, the net amount after the 2% fee will be deposited, and the 2% fee will be recorded as an expense. The amount received is 98% of $4,500, which is $4,410, and the fee is $90.

Date: February 10


Debit: Cash                                                    $4,410


Debit: Card Service Expense                        $90


Credit: Accounts Receivable — Visa                $4,500

This records the cash received from Visa after deducting the service fee and the associated expense.

Journalizing February 10 – Collection on Colaw Credit Card Sales

On February 10, Colaw Stores collected $10,000 from credit card sales previously recorded on January 15. The journal entry involves debiting Cash and crediting Accounts Receivable:

Date: February 10


Debit: Cash                                              $10,000


Credit: Accounts Receivable — Colaw Credit Card   $10,000

This reflects the collection of receivables from credit card transactions and increases cash on hand.

Journalizing February 15 – Adding Finance Charges

On February 15, Colaw Stores added finance charges of 1.5% to the outstanding credit card balances. The total of receivables subject to finance charges can be calculated based on previous balances. Assuming the total receivable balance before charges is the sum of previous sales ($18,000 + $4,500 = $22,500), finance charges of 1.5% are recorded as revenue or interest income.

Finance charges calculation: 1.5% of $22,500 = $337.50

The journal entry to accrue finance charges would be:

Date: February 15


Debit: Accounts Receivable — Colaw Credit Card  $337.50


Credit: Finance Revenue or Interest Income           $337.50

This entry reflects the additional receivable from finance charges, increasing total receivables and recording revenue earned from finance charges.

In conclusion, the detailed journal entries illustrate the proper recording of credit card sales, associated service fees, collections, and finance charges, ensuring accurate financial statements and transparency in revenue recognition.

References

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