Reviewer: LarryWalther, PhD, CPA, CMA

One percent, 2%, 3%, 4%: those are the credit card fees that have merchants' profits going out the door!

When you pay with plastic rather than cash, a merchant is assessed a fee by the credit card company. The fees can be hefty, are usually based on a percentage of the sale, and take a big bite out of a company's bottom line. Now Congress is considering limits on these fees. Credit card companies are fighting back, arguing that the reduction of such fees will inevitably lead to less credit being extended to consumers and higher annual fees for the privilege of holding a credit card.

How should a merchant account for a credit card sale and the related fees? The answer may be trickier than it seems. Chapter 7 at www.principlesofaccounting.com provides alternative models, based on whether the fees relate to "bank cards" or other types of credit cards. You may be surprised to find that the cash flow and accounting implications vary considerably based on the type of card the customer uses.

1. What are the advantages and disadvantages of accepting credit cards from customers?
   
   
2. Describe the proper accounting for credit card transactions. How are the related fees handled in the accounting records?
   
   
3. Do you believe Congress should intervene in regulating credit card fees?
   
   
4. How long does it take for a merchant to receive funding for credit card transactions? Does it depend on the type of card presented by the customer? Are merchants required to accept credit cards?

In order to access quiz questions in our weekly Instructor’s Guides, archived Instructor’s Guides or to post comments and messages on our professor blogs, you will need to register using your subscriber ID. If you are not a current BusinessWeek subscriber and do not have a subscriber ID, you can still register and post your ideas and comments on our professor blogs.

Click here to register.