Post dated checks received by mail in settlement of customers accounts should be
Favorited Content Publication date: 30 Apr 2022 (updated 30 Sep 2022) us Financial statement presentation guide 11.3 Figure FSP 11-1 includes the items that are required by S-X 5-02(19)(a) to be stated separately on the balance sheet or disclosed in the footnotes. It also references the section in this guide where each item is discussed in more detail. Figure FSP 11-1
11.3.1 Trade creditorsThis caption typically represents amounts owed to suppliers of goods and services that a reporting entity consumes through operations. There are numerous considerations that a reporting entity should evaluate related to these payables, the most common of which are discussed in the following subtopics. 11.3.1.1 Bank and book overdraftsBook overdrafts—representing outstanding checks in excess of funds on deposit—should be classified as liabilities at the balance sheet date. Bank overdrafts—representing the total of checks honored by the bank that exceed the amount of cash available in the reporting entity’s account—result in the creation of a short-term loan. See FSP 6.5.1.2 and FSP 6.5.1.1 for presentation and disclosure considerations related to book and bank overdrafts. 11.3.1.2 Classification of outstanding checksNon-authoritative guidance included in AICPA Q&A Section 1100.08 indicates that outstanding checks should be presented as a reduction of cash. As a result, in practice, most preparers present a liability on the balance sheet equal to only the amount of outstanding checks in excess of available cash and disclose that such liability is a reinstatement of liabilities cleared in the bookkeeping process. Example FSP 11-1 illustrates the classification of outstanding checks covered by funds on deposit. EXAMPLE FSP 11-1 FSP Corp has three separate bank accounts with the same bank: a deposit account, a main account, and a disbursement account. The deposit account is used by the reporting entity to accumulate deposits from customers. At the end of each business day, any amounts in the deposit account are automatically swept into the main account. FSP Corp uses the disbursement account to write checks. Each day, the bank accumulates the total amount of the checks presented for payment and, pursuant to its account agreement with FSP Corp, sweeps an equal amount out of the main account into the disbursement account to cover the balance. According to the account agreement, the bank has a right to draw any amount from an account with a positive balance to cover an account with a negative balance. As of year-end, FSP Corp has a negative balance in its general ledger account for the disbursement account of $9 million (representing outstanding checks), a positive balance in its general ledger account for the main account of $8 million, and a zero balance in the deposit account. How should FSP Corp present its cash accounts on its balance sheet? Analysis Because the bank has the ability to draw any amount from an account with a positive balance to cover an account with a negative balance, FSP Corp should offset the $8 million positive balance in the main account against the $9 million in outstanding checks (negative balance in the disbursement account). The net amount of $1 million should be reported as a current liability on FSP Corp’s balance sheet. 11.3.1.3 Checks written but not releasedChecks that have not been released by the end of the accounting period (i.e., not mailed or otherwise transmitted to the payee) should not be deducted from the cash balance (i.e., the related balances should still be reflected as cash and the related account payable or other liability). 11.3.1.4 Drafts payableA draft is an order to pay a certain sum of money. It is signed by the drawer (e.g., an insurance company for a claim payment) and payable to order or bearer (e.g., an insurance policyholder). When the draft is presented to the drawee (i.e., the bank), it is paid only upon the approval of the drawer. Drafts and checks have different legal characteristics. A check is payable on demand, whereas a draft must be approved for payment by the drawer before it is honored by the bank. Drafts payable should be netted against the cash balance, similar to the treatment for outstanding checks. It is acceptable, however, for a reporting entity to present drafts payable gross as a liability if the total amount is disclosed either on the balance sheet or in a footnote. This approach recognizes that there is a legal distinction between a check and a draft. The policy election must be consistently applied. 11.3.1.5 Supplier finance programsSupplier finance programs may also be referred to as reverse factoring, payables finance, or structured payables arrangements. A reporting entity (i.e., the buyer) uses these programs to provide its suppliers of goods or services/vendors access to payment from a third-party finance provider or intermediary in advance of an invoice due date originally agreed with the buyer. It is common in such arrangements for the buyer to confirm the amount and validity of invoices to the finance provider in advance of the early payment offer. Although not determinative, one indicator that a reporting entity may have a supplier finance program is the commitment to pay a third party (other than the supplier) for a confirmed invoice without offset, deduction, or any other ability to avoid payment. In determining whether an entity has established a supplier finance program, all available evidence should be considered, including arrangements between (1) the reporting entity and the finance provider or intermediary and (2) the reporting entity and its suppliers whose invoices the entity has confirmed as valid. Balance sheet presentation Depending on the reporting entity’s level of involvement and whether or not the supplier finance program represents a financing of the original obligation, the terms of the supplier finance program could cause the substance of the liability to change from trade payable to debt. This change in classification could affect a reporting entity’s leverage ratios, and possibly, its covenants. The presentation of supplier finance programs is not addressed directly in authoritative literature. When entering into supplier finance programs, a reporting entity should weigh the evidence to determine whether the obligations in the program are more akin to a trade payable or debt. Program terms differ, and even similar programs in different markets or jurisdictions may be accounted for differently because of variations in industry norms and laws by jurisdiction. When evaluating whether an obligation is more akin to a trade payable or debt, a reporting entity should consider:
Figure FSP 11-2 details factors a reporting entity should consider to determine whether an obligation in a supplier finance program should be presented as a trade payable or debt financing. Figure FSP 11-2
Notwithstanding these considerations, the presence of certain terms may suggest that the obligation is, in substance, debt. These include:
Balance sheet classification of the liability also impacts the statement of cash flows. See FSP 6.9.11 for discussion of the statement of cash flows classification. Example FSP 11-2 illustrates the application of the accounts payable versus debt classification considerations. EXAMPLE FSP 11-2 FSP Corp and its financial institution ask certain of FSP Corp’s vendors to enter into a new payment program. Under the payment program, the financial institution pays the vendors directly and participates in an early pay discount that the vendors offer for invoices paid within 15 days. FSP Corp is then obligated to pay the financial institution the agreed-upon amount at the invoice due date. The amount FSP Corp pays the financial institution at the due date is less than the full amount of the invoice because the financial institution has offered FSP Corp a portion of the early pay discount it receives from the vendor. Should FSP Corp classify the payable to the financial institution as accounts payable? Analysis No. The arrangement between the financial institution and FSP Corp results in FSP Corp securing financing at a lower cost of funds than in the vendor's original invoice. FSP Corp received an early-pay discount for which it was not otherwise eligible. As such, FSP Corp should derecognize its trade account payable and record a new liability classified on its balance sheet as a borrowing from the lender. Further, FSP Corp's statement of cash flows should reflect an operating cash outflow and financing cash inflow related to the affected trade payable balances, and a financing cash outflow upon payment to the financial institution and settlement of the obligation. See FSP 6.9.11 for discussion of the statement of cash flows classification of supplier finance programs. New guidance In September 2022, the FASB issued ASU 2022-04, Disclosure of Supplier Finance Program Obligations, which requires disclosures about supplier finance programs. While this standard does not address the accounting for or financial statement presentation of these arrangements, it requires specific disclosures intended to enhance transparency, such as key terms of the program, amounts outstanding, balance sheet presentation, and associated rollforward information. These disclosures are required for supplier finance programs, regardless of the financial statement presentation (i.e., as trade payables or as debt) of the related liabilities. Traditional paying agent arrangements discussed in FSP 11.3.1.6 are not in the scope of ASU 2022-04. For all entities, the amendments are effective for fiscal years beginning after December 15, 2022, including interim periods with those fiscal years, except for the requirement to disclose rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The amendments should be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which should be applied prospectively. During the fiscal year of adoption, the information on the key terms and balance sheet presentation, which are annual disclosure requirements, should also be disclosed in each interim period. For example, for a calendar year-end entity, disclosure of the amounts outstanding, key terms, and balance sheet presentation is required beginning in the first quarter 2023 financial statements. Disclosure of the rollforward information would first be required in the 2024 annual financial statements. Required disclosures after adoption of ASU 2022-04 Reporting entities that use supplier finance programs must disclose sufficient information to enable users of financial statements to understand the nature and potential magnitude of the programs, activity during the period, and changes from period to period. There are both annual and interim disclosure requirements included in ASC 405-50-50-3 through ASC 405-50-50-4. If a reporting entity uses more than one supplier finance program, it may aggregate disclosures, but not to the extent that useful information is obscured by the aggregation of programs that have substantially different characteristics. The following disclosures are required in annual periods.
See ASC 405-50-55-1 through 405-50-55-3 for an illustrative example of the disclosure of key terms.
See ASC 405-50-55-4 through 405-50-55-5 for an illustrative example of the rollforward disclosure. In interim periods, a reporting entity should disclose the amount of obligations confirmed as valid that remain outstanding at the end of the reporting period. Also, during the fiscal year of adoption, the information on the key terms and balance sheet presentation, which are annual disclosure requirements, should also be disclosed in each interim period. 11.3.1.6 Liabilities settled through paying agentsIn some circumstances, a reporting entity may engage a financial institution to operate solely as a paying agent by entering into arrangements that allow for the financial institution to make payments on its behalf. In some instances, these arrangements may allow the reporting entity to participate in rebates or “rewards” programs based on transaction volume. Generally, a reporting entity settles the outstanding obligations to the paying agent within the same time period that the reporting entity would have settled the vendor payable, absent a paying agent. Transaction types vary, and include:
11.3.2 Underwriters, promoters, and employeesS-X 5-02 requires reporting entities to separately present in the financial statements amounts payable to the following classes of individuals:
Excerpt from Section 2(a)(11) of 1933 Securities Act The term ‘‘underwriter’’ means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors’ or sellers’ commission.
Excerpt from Securities Act of 1933, Rule 405 (i) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer; or (ii) Any person who, in connection with the founding and organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of such securities. However, a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise.
11.3.3 Accounts or notes payable to other partiesA reporting entity should report accounts or notes payable to other parties in addition to those discussed in FSP 11.3.1 through FSP 11.3.2. Others can include, but are not limited to, repurchase agreements. See FSP 22 for presentation and disclosure considerations related to repurchase agreements. PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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What is the accounting treatment for customer's postA post-dated cheque is one that the recipient can encash on a future date. Such cheques are not payable until the date written on the face of the cheque. In the accounting books of both the issuer and the recipient, the transaction will not be recorded until the date provided on the cheque.
In which account are postAnswer and Explanation: Postdated checks received are classified as receivables.
Are postTo simply put, post-dated cheque is one which is drawn with a date which is after the date on which cheque was written.. Since the amount is receivable in future it is considered as accounts receivable.
Is postPractical Use of a Post Dated Check
In this situation, the check is considered a negotiable instrument, irrespective of the date, and it is likely that the recipient will receive cash from the bank prior to the date on the check.
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