Chapter 14- Credit Card Surcharge Opposed by Consumer Group

http://www.cbc.ca/consumer/story/2010/12/20/con-credit-card-surcharge.html

 

Summary

The Consumers Association of Canada (CAC) opposes to surcharges for paying by credit card. In order for them to decide, they took a survey from 916 credit card holders.  The ones that were surveyed were asked to pay a fee for using credit cards; eighty percent were opposed to paying 3.5% for the convenience of paying by credit card.  Bruce Cran, the CAC president proves their point by stating, “The results speak for themselves. Canadians are overwhelmingly opposed to the suggestion that they should have to pay merchants for the privilege of paying them.”  Many merchants are very upset with fees for credit cards as high as 3.5% of the purchase price. Last week, Melanie Aitken, Canada’s competition commissioner, announced she is taking Visa and MasterCard to court in an effort to alter how the companies are paid for the use of their cards. On December 16, the Canadian Federation of Independent Business (CFIB) announced to the public that it will launch a campaign that will encourage consumers to pay for their purchases with cash or debit cards. In a statement from CBC News, MasterCard said merchants are free to offer discounts or other inducements to customers who pay cash or with debit card but they can not just add a surcharge now. In addition, the CAC comments about Australia, where surcharging on credit cards is allowed, many businesses there have changed the practice into a way they can earn revenue.

Connections

In society, instead of using cash, many people now use bank credit cards from either Visa or MasterCard as their method of payment for their purchases. Currently, without a surcharge on credit cards the accounting entry would have been to debit Credit Card Discount Expense and credit Bank. If the surcharge were to be applied, new accounts would need to be added. For instance, two new accounts would be a Credit Card Recoverable in which we would debit and a Credit Card Payable account that will be credited. In addition, there was always a hidden cost that consumers do not really know about because it has already been included in the prices that the business listed when we are making our purchases. Businesses would have already taken in consideration of all their expenses before deciding on the price of the item they are selling which includes the fee businesses have for accepting credit cards as a form of payment.

Reflections

Consumers, such as myself, would definitely oppose to paying a surcharge for the convenience of paying by credit card. We would be paying a lot more money because we would not only be paying for them merchandise but for the company’s expense even more than before. On the other hand, if I were to view the surcharge from a business’ standpoint, the surcharge would benefit a business. Businesses would be able to charge it the same price and not lower it. For instance before the HST was finalized, many people assumed that when the HST becomes established many businesses would lower their prices because they can now recover all their taxes. Unfortunately, that was not what happened because the prices stayed the same. Although a business may lose customers because of the surcharge, a business can still convince a consumer to continue to purchase at their company by having excellent service and quality on their merchandises. Therefore, a company would be able to gain revenue while having a surcharge.

Chapter 11 - Increased Taxes, or Reduction in Services?

City projects $20-million deficit and asks citizens: 'Would you rather have increased taxes, or reduction in services?'

http://www.theprovince.co/news/City+projects+million+deficit+asks+citizens+Would+rather+have+increased/3690265/story.html

Summary

The article on The Province that I have read is written by Clare Ogilvie explaining the situation of how Vancouver is doing financially.  Currently, there is a budget gap of twenty million dollars and Vancouver has to balance its’ budget. Therefore, they are deciding to increase residential taxes by around two percent which will cover eleven million dollars but the idea is not very popular to the citizens. In addition, the other proposal to make up the money is to reduce some public services. Some services are out of the cut, such as public safety, affordable housing, the environment and arts of culture which make Vancouver a world-class city. Citizens and businesses are allowed to put in opinions about their choice-to raise taxes or reduce services.  The final decision will be held on December 14.

Connection

The connection from the article and the text is mainly about Merchandising Businesses being affected.  In general, the amount of Cost of Goods Sold is influenced and decreased due to the increase of taxes citizens have to pay.  This may affect the consumers’ desire to buy more products because their budget is limited. Therefore, a low amount of Cost of Goods Sold for a business would lead to less profit which may, as a result, become a net loss if the amount we made is not enough to cover the expenses.  To conclude, the number of Cost of Goods Sold and the Gross Profit in a business would decrease.

Reflection

The article reminds business owners and accountants that if the taxes really occurred than many businesses, not only merchandising would lose money. Although the economy is slowly turning better, it is still not as great as it used to be so if the tax was added, the businesses would get even worse.  In addition, the citizens are receiving the same amount of income but if we were to add on taxes than their income would continue to diminish. When they have fewer income people are less willing to spend and purchase new merchandises. For instance, if we were planning on buying two new t-shirts, we might only be able to afford one. This causes the Cost of Goods Sold inventory and profit to decrease because items are not being bought as much as before. When the company is losing customers, they can lower the prices of their products or create promotions (such as buy 1 get 1 free).  As a result, the demand might even be more than before.