Record Liability

USA Discussion in 'General Accountancy Discussion' started by adnan1980, Dec 14, 2018.

  1. adnan1980

    adnan1980

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    My questions is when to record Liability, So here is the situation

    Company A received computers to install Software. Installation of software will be done by Dec 31st 2018, but Computers will not be delivered till Jan 2019. Since their work and the contract was to install software my question is weather or not to record liability for 2018? Since the service is done should I accru in 2018?
     
    Last edited: Dec 14, 2018
    adnan1980, Dec 14, 2018
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  2. adnan1980

    alcapitalus

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    I'm missing data here, terms of revenues and of delivery? Assuming If you were paid prior to commencing the work or subject to receive funds upon delivery capitalize the cost as inventory offset crediting cash or accounts payable or payroll liabilities (depending on labor provider). To account for future revenue, debit receivables and credit deferred revenue. January, reclass inventory and deferred revenue to the P&L .
     
    alcapitalus, Dec 14, 2018
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  3. adnan1980

    Manish45

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    I summarize the situation:

    Company A gives software installation service to its customer.

    I assume that you are asking from the point of view of the customer because you asked about recording the liability.

    Legally, the payment may become due on the basis of contract terms. However, accounting is done using substance over form principle.

    As the work has been completed till Dec, you need to record the liability. That could happen by way of the provision amount or as per actual invoice amount.


    Thank you.
     
    Manish45, Dec 15, 2018
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