First, Jack Dorsey co-founded Twitter in 2006 and now he wants to change the way we exchange money. Dorsey is leading a startup company called Square that is a tiny credit card terminal that plugs into an iPhone (and soon it will work on Google Android software), allowing small vendors and even individuals to complete credit card transactions from any location. As Tole Hart, an analyst for the Gartner Inc. research firm put it: “It democratizes the receipt of credit card payments.”
1. Assume that the new Square service will cost $15 per month and credit card fees will be 2.5% of sales. If you are a street vendor selling t-shirts for $20 each (at a cost to you of $7 each) and sell 340 t-shirts (with credit card transactions only) during the month, what journal entry would you make to record the monthly sales?
2. What type of internal controls might concern you about this new technology? Explain.
3. What potential for fraud do you anticipate? Explain.
Metz, R. (2010). “Device Lets Anyone Accept Credit Cards,” Journalgazette.net (Retrievable online at http://www.journalgazette.net/article/20100118/BIZ/301189951/-1/biz09)