Chapter 7 and 8 Summaries
Chapter 7 goes into accounting for receivables. It starts by explaining that Accounts Receivable are amounts due from customers for credit sales. Accounts Receivable occur from credit sales to customers. For sales on credit, they are recorded by increasing, or debiting, Accounts Receivable. A supplementary record, called the accounts receivable ledger, is created to maintain a separate account for each customer. A supplementary record, called the accounts receivable ledger, is created to maintain a separate account for each customer. To record a credit sale, one must debit Accounts Receivable—Customer Name, and credit Sales. The debit is posted to the Accounts Receivable account in the general ledger and to the customer account in the accounts receivable ledger. Many larger retailers maintain their own credit cards to grant credit to preapproved customers and to earn interest on unpaid balances.
For credit card sales, sellers allow customers to use third-party credit and debit cards for several reasons: the seller does not have to make decisions about who gets credit and how much the seller avoids the risk of extending credit to customers who do not pay, the seller typically receives cash from the credit card company sooner than had it granted credit directly to customers, and a variety of credit options for customers offers a potential increase in sales volume. To make an entry for credit card sales when cash is received upon deposit of sales receipt, one must debit Cash (for the amount of sale less the credit card company charge), debit Credit Card Expense (for the fee), and credit to Sales (for the full invoice amount). If a company must remit the credit card sales receipts to the credit card company and wait for the cash payment, one must debit Accounts Receivable (for full invoice), credit Credit Card Expense (for the fee), and