Bank Credit Cards Chapter 10.2

Credit Cards Credit cards are so highly used that we can almost turn to a non-cash economic system Credit cards are so highly used that we can almost turn to a non-cash economic system If credit cards were to be discontinued some small businesses would no longer survive If credit cards were to be discontinued some small businesses would no longer survive Credit cards were first issued by major department stores and oil companies Credit cards were first issued by major department stores and oil companies

Most small businesses can not support their own credit card, but they do utilise a bank credit card such as Visa or MC Most small businesses can not support their own credit card, but they do utilise a bank credit card such as Visa or MC In this case the banks support the short term loan for the purchase from the store In this case the banks support the short term loan for the purchase from the store

Accounting for Bank Credit Transactions Step 1 Step 1 –The first step is when the customer purchases a product or service and pays with a credit card –The sale is written up on a credit card slip (source document) –The credit card machine will print three total copies of the credit sales slip (one customer copy and one merchant copy, one bank)

Step 2 Step 2 –The merchant must keep all credit sales slips together during the business day Step 3 Step 3 –The credit slips are included in the bank deposit at the end of the day, this entails A summary of all credit transactions A summary of all credit transactions All transaction slips and the total go to the bank All transaction slips and the total go to the bank

Step 4 Step 4 –The accounting journal entry for credit transactions would be the same as a cash sale…eg Debit Credit Bank$$$$ Sales Rev.$$$$$ Sales Rev.$$$$$ GST Payable$$$$$ GST Payable$$$$$ PST Payable$$$$$ PST Payable$$$$$ Credit Card sale

Credit Card Charges When the merchant deposits the credit card slips to the bank the bank will pay the merchant the total value of the credit transactions When the merchant deposits the credit card slips to the bank the bank will pay the merchant the total value of the credit transactions The merchant does not need to worry about collecting the money from the customer The merchant does not need to worry about collecting the money from the customer For this service the bank will charge a fee to the merchant For this service the bank will charge a fee to the merchant

The accounting entry for the bank credit charge would be similar to any other expense entry The accounting entry for the bank credit charge would be similar to any other expense entry DebitCredit Credit card fee expense$$$$ Bank$$$$