How does accrual accounting record a transaction when a customer pays with a credit card?

• A. Revenue is recognized upon receiving payment
• B. Revenue is recorded immediately as accounts receivable
• C. Revenue is never recorded
• D. Revenue is recorded only when cash is deposited

Answer: (B)

In accrual accounting, the recognition of revenue is based on when the goods or services are delivered, rather than when cash is received. When a customer pays with a credit card, the transaction does not involve an immediate cash transfer; instead, the business effectively receives a promise of payment from the credit card company.

This means that at the point of sale, the revenue is recorded as accounts receivable, reflecting the amount expected to be received once the credit card payment is processed. The recognition of revenue in this manner follows the accretion principle, which emphasizes the economic activity represented by the transaction rather than the timing of cash movement.

Thus, recording revenue immediately as accounts receivable captures the transaction's economic reality accurately, aligning with the accrual accounting standards.