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Govt contract work requires a security deposit to be paid to customer in the form of an unconditional bank guarantee, (3% of value of contract) before works can commence, and is held until 12 months from completion (maintenance period). It is NOT retention as it is additional to the tendered price.
Two scenarios 1. Use of Company funds & 2. Loan from bank paid to client.
How do i record the payment and associated transactions?
A Bank Guarantee does not require any money to be paid. It is just a guarantee from the bank to the customer that the Bank would honour if presented to it.
For a bank to issue a guarantee, they usually require a Term Deposit lodged with them to cover the guarantee, or the take security over property.
It appears there is a physical outflow of funds.
You would setup an Asset Account - either Current or Non-Current depending on the remaining term of the retention.
Hi Ian & Duncan,
Apologies Ian, I forgot to mention the term deposit info.
Yes, I had to arrange a term deposit and transferred funds to it , using our own funds in one instance and taking out a loan in the other instance.
Will set up the Long Term Asset Account and then Dr Asset Account & Cr Bank Acct & Loan Acct.
Thanks both for assistance.