Which of the following best describes the main idea of credit cards in the context of accounting?

• A. Credit cards are used to record only cash transactions in the accounting system.
• B. Credit cards are a type of fixed asset that depreciates over time.
• C. Credit cards allow individuals or businesses to make purchases now and pay for them later, creating a liability until the balance is paid.
• D. Credit cards represent a company's equity in the balance sheet.

Answer: (C)

Verified step by step guidance

1. Understand the concept of credit cards in accounting: Credit cards are a financial tool that allows individuals or businesses to make purchases without immediate payment, creating a liability until the balance is settled.
2. Analyze the options provided: Evaluate each statement to determine its accuracy in describing the role of credit cards in accounting.
3. Option 1: 'Credit cards are used to record only cash transactions in the accounting system.' This is incorrect because credit card transactions are not cash transactions; they create liabilities.
4. Option 2: 'Credit cards are a type of fixed asset that depreciates over time.' This is incorrect because credit cards are not physical assets; they are a financial instrument and do not depreciate.
5. Option 4: 'Credit cards represent a company's equity in the balance sheet.' This is incorrect because credit cards create liabilities, not equity. The correct answer is the third option, which accurately describes credit cards as creating a liability until the balance is paid.