For the credit card sale, which statement could be true depending on settlement timing?

For the credit card sale, which statement could be true depending on settlement timing?

• A. It always increases cash immediately
• B. It never increases assets
• C. It could increase cash or accounts receivable
• D. It decreases revenue

Answer: (C)

When a sale is made with a credit card, revenue is recognized at the time of the sale, but the cash receipt from the card issuer depends on settlement timing. If the issuer settles quickly, cash is deposited and increases the cash balance. If settlement hasn’t occurred yet, you may record an asset representing the amount owed by the card issuer (an accounts receivable). Later, when settlement happens, cash increases and the receivable decreases. So, depending on when the settlement occurs, the asset boost could be cash or accounts receivable. Revenue is not decreased by settlement timing, and it isn’t guaranteed that cash rises immediately, nor is it true that no assets ever increase.

When a sale is made with a credit card, revenue is recognized at the time of the sale, but the cash receipt from the card issuer depends on settlement timing. If the issuer settles quickly, cash is deposited and increases the cash balance. If settlement hasn’t occurred yet, you may record an asset representing the amount owed by the card issuer (an accounts receivable). Later, when settlement happens, cash increases and the receivable decreases. So, depending on when the settlement occurs, the asset boost could be cash or accounts receivable. Revenue is not decreased by settlement timing, and it isn’t guaranteed that cash rises immediately, nor is it true that no assets ever increase.