Can anyone advise of the correct treatment of a deposit that is being held as a deposit on the van that will be totally refundable (subject to any damage to van) when the franchise ends.
Strictly speaking its not actually a deposit but rather a guarantee, a desposit would in fact be an advance payment where in this instance it is simply a sum being held as a guarantee.
A guarantee would be accounted for as a debtor on the balance sheet. The transaction would not touch the P&L at all.
If anything happens to the van then all of part of the guarantee would pass to the guarantee holder in which instance the payment would be recognised as an expense through the P&L matched to the guarantee, not matched to the bank as the other side of the double entry.
If nothing happens to the van then the transaction would be reversed to put the guarantee back to the bank.
HTH,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
