Question

Jamestown Furniture Mart, Inc., sold $ 80,000 of furniture in May to customers who used their American Express credit cards. Such sales are subject to a 3 per cent discount by American Express (a nonbank credit card).
Required:
a. Prepare journal entries to record the sales and the subsequent receipt of cash from the credit card company.
b. Do the same as requirement (a), but assume the credit cards used were VISA cards (a bank credit card).

Answer 1

Answer:

a. Debit Bank for $77,600; Debit Sales discount for $2.400; and Credit Sales for $80,000.

a. Debit Bank for $80,000; and Credit Sales for $80,000.

Explanation:

a. Prepare journal entries to record the sales and the subsequent receipt of cash from the credit card company.

The journal entry will look as follows:

Accounts Title                                         Debit ($)        Credit ($)        

Bank (97% * 80,000)                                77,600

Sales discount  (3% * 80,000)                  2.400

Sales                                                                                80,000

(To record sales paid for by the customer using American Express credit cards.)

b. Do the same as requirement (a), but assume the credit cards used were VISA cards (a bank credit card).

Under this scenario, the sales are NOT subject to discount and the customer will 100% of the price.

The journal entry will therefore look as follows:

Accounts Title              Debit ($)          Credit ($)                  

Bank                              80,000

Sales                                                       80,000

(To record sales paid for by the customer using VISA cards.)