Bank guarantee

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Nikita Gupta

Nikita Gupta (Querist)

04 July 2013 What is Bank Guarantee?
And what is it accounting treatment?

Hitender Gaur

Hitender Gaur (Expert)

04 July 2013 Bank guarantee is a written agreement for a fix amount to pay third person on your behalf, as and when he asked for that, in accounting we treat it as security.

Karan Teli

Karan Teli (Expert)

04 July 2013 Bank Guarantee is nothing but a guarantee given by the Bankers. General, this is seen in case of giving securities to a person or in case of Forex trades. What happens actually is when we plan out for such type of trades we need to approach a banker. Banker would take certain amount of charges and commissions before executing in some ones favor.
But banker doesn't give us a security for free since it is a risk matter, hence the person demanding a BG has to first give some fixed deposit or mortgage some fixed asset.
Regarding accounting, commissions has to be charged off to P & L a/c and the actual BG executed shall not be accounted but the BG Transferred has to be accounted as Contingent Liabilities.

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