A Company entered into a contract for receipt of a bank guarantee to fulfill its contractual relationship with the contractor. Money were paid for services under the contract for receipt of a bank guarantee. What are the peculiarities of reflection of such expenses in accounting?
The certificate of rendered services signed by the bank is the basis for the reflection of business transaction (receipt of a bank guarantee) in accounting. If the bank does not issue such a document, the confirmation of expenses is the contract and bank statement that records payment under the contract conditions for the bank guarantee. It should be noted that the certificate of rendered works (services) must include all the required details of the primary document provided for by Art.9 of the Law of Ukraine “On Accounting and Financial Statements in Ukraine” of 16.07.1999, № 996-XIV and para.2.4 Regulations on documentary provision of records in accounting approved by the order of the Ministry of Finance of Ukraine dated 24.05.1995, № 88.
There is direct provision in sec.10 of para.18 of Accounting Regulations 16 “Expenses” approved by order of the Ministry of Finance of Ukraine dated 31.12.1999, № 318, which states that the administrative costs include expenses related to “payment for settlement and cash services and other banking services as well as expenses related to the purchase and sale of foreign currency”.
We consider that in this regard expenses on received bank guarantee should be reflected as administrative, despite the fact that deliveries from non-resident were not executed. According to this position such expenses should be accounted on account 92 “Administrative expenses”.
If a bank guarantee issued for a long term, such as a year or more, and at that the guarantee should be paid at once for the whole period of its validity before submission or in the beginning of submission, in this case it is advisable to speak about arising of expenses of future periods for the guarantee receiver. Accordingly, such expenses should be reflected by entering: Dr 39 “Deferred expenses” Kr 685 “Settlements with other creditors”. Subsequently expenses we showed on account 39 should be distributed in equal parts for the periods to which such expenses are related.
