Describe and propose the necessary journal entries that capture financial transactions for the following fact pattern. Include
Question:
Describe and propose the necessary journal entries that capture financial transactions for the following fact pattern. Include discussion of overall financial statement impact in your analysis.
Background:
Company X (payment processor/gateway) initiates its flow of funds when an authorized charge from a credit card holder is created through a merchant. At this moment, Company X incurs a liability to the its user (a merchant), and transmits the charge to the processor/acquirer in order to be validated with the credit card issuer (e.g. Visa). After the charge is authorized by the acquirer, Company X will receive funds from the acquirer, net of acquirer fees (1.5%), which are used to settle the liability to the merchant, net of Company X fees (2.9% + 30c per transaction).
Transactions:
- Charge date: 12/30/19
- Charge amount: $100
- Company X's bank account #1 beginning balance: $200
- Company X transmits the charge to the acquirer for validation on the same day the authorized charge is created. The acquirer takes 1 day to confirm the charge has been validated and 1 more day to send funds to Company X.
- Payment to the merchant occurs 1 day prior to receiving the related funds from the acquirer.
Horngrens Financial and Managerial Accounting
ISBN: 978-0133255584
4th Edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura