In accrual accounting, where does revenue from a credit card sale appear initially?

• A. Revenue immediately, but cash is recorded in Accounts Receivable initially
• B. Revenue only when cash is deposited
• C. Revenue only upon cash receipt and there is no Accounts Receivable
• D. Revenue never recognized until the customer pays their card bill

Answer: (A)

The main idea is that revenue is recognized when earned, not when cash is received. In a credit card sale, the seller has satisfied the performance obligation at the point of sale, so revenue is recorded immediately. Since the cash doesn’t come directly from the customer at that moment, the seller creates a receivable from the card issuer (a credit card receivable) to reflect the future cash collection. The typical initial entry is to debit Accounts Receivable (from the card issuer) and credit Revenue for the sale amount. Later, when the card issuer settles, cash is received and the receivable is cleared. This explains why revenue appears immediately while cash is not yet in hand.

Why the other ideas don’t fit: revenue isn’t postponed until cash is deposited, nor is it postponed until the customer pays their card bill; and there is indeed a receivable created to reflect the expected payment from the card issuer.