The An Corporation accepted a credit card for a sale of $2,000 on December 16, 2

ID: 2594450 • Letter: T

Question

The An Corporation accepted a credit card for a sale of $2,000 on December 16, 2011. The credit card company charges a fee of 4%. On January 5, 2012, An received payment from, the credit card company. Indicate whether each of the following statements is true or false. a) An should record the $2,000 revenue in 2012 when the cash is received. b) An should record a credit card receivable account receivable of $2,000 on 12/16/11 c) The collection of cash in 2012 has no effect on 2012 net income. d) The collection of cash does not affect total assets in 2012. e) The entry on 12/16/11 increases total revenues and total expenses on the 2011 income statement.

Explanation / Answer

An should record the sale $ 2000 revenue in 2012 when the cash is received

False, as we follow accrual concept, we have to recognize the revenue as and when earned. Same has been earned in the year 2011.

An should record a credit card receivable account receivable of $2000 on 12/16/11

True, as we are yet to receive the money from credit card company, we have to debit the credit card receivable account being an asset.

The collection of cash in 2012 has no effect on 2012 net income.

True, as we already recognized the income in 2011 again we need not recognise the same. Therefore, we will not have any effect on income upon its receipt.

The collection of cash does not affect total assets in 2012

False, as there will be a cash inflow. Cash and Cash equivalents balance will increase by an amount equal to cash receipt.

The entry on 12/16/11 increases total revenues and total expenses on the 2011 income statement.

True, we have earned a revenue and we will incur the credit card expenses. Therefore, there will be an increase in both revenue and expenses in 2011.