How to account for these transactions?

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Omar2723
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Joined: 16 Apr 2022, 02:09

How to account for these transactions?

Post by Omar2723 »

hello,
hope you all doing well :)

I have a question about the accounting treatment of this case

let's assume that the customer is going to have a contract with us to get an apartment in the future
when the customer signs the contract he gives us a Bank cheques that have a different collection dates but according to the contract he MUST pay all the payment so basically if one cheques was rejected from the bank he should provide us with another way to collect the payment (Cash for example)

so my question is if as he signs the contract
should we make a entry or not ( as i can see no event happened to record it ) and then we record AR when the cheque is due and a contract liability then
is it right accounting procedures ?
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Marek Muc
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Re: How to account for these transactions?

Post by Marek Muc »

let's say you would be given a chance to post this question again, what more meaningful title would you use? ;)
Integraoutsourcing
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Joined: 19 Apr 2023, 08:35

Re: How to account for these transactions?

Post by Integraoutsourcing »

So, when the customer signs the contract and provides a bank cheque, there isn't really a transaction that's occurred yet. As a result, there wouldn't be an entry to record in the accounting system at that point. The entry for Accounts Receivable would only come later when the cheque is due and collected from the bank.

However, when the contract is signed, the company does have an obligation to provide the apartment at a later date, and the customer has promised to pay for it. So, Contract Liability should be recognized at that point. This would be recorded as a current liability, and then adjusted as payments are received or when the contract is fulfilled.

Therefore, the accounting treatment for this scenario would involve recognizing a Contract Liability at the time of contract signing, and then recording Accounts Receivable when the bank cheque is due and collected.
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Marek Muc
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Re: How to account for these transactions?

Post by Marek Muc »

Omar2723 waited almost a year for the answer but hopefully it was worth it ;)

So Integraoutsourcing, are you looking to recruit professional accountants, or just looking for new clients? 8-)
JRSB
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Re: How to account for these transactions?

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:-)
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