Please educate me on following:
1-We paid premium to a insurance company regarding issuance of performance secuirty which required by client from us. This premium paid just for one time. How we will record it and what will be nature of this account ?
2-Further, we also paid 3% cash margin of contract value to this insurance company which they will returned upon successful completion of the project and when we will submit performance security bond which will returned to us by client. How we will record it and what will be nature of this account ?
3-Furthermore, we handed over them cross cheque of the value of performance security amount which they will keep on their hand and if performance security will claim by client due to our satisfactory performance they will use it. How we will record it
Thanks in Advance.
To record the payment of premium for performance security issuance
Debit : Performance Security Premium Expense account
Credit : the Cash/Bank account.
The nature of this account would be an expense account since it represents a one-time cost incurred to obtain the performance security.
To record the payment of the cash margin for the contract value
Debit : Cash Margin Receivable account
Credit : Cash/Bank account.
The nature of this account would be an asset account since it represents an amount that is expected to be received in the future.
To record the payment of the cross cheque for the performance security amount,
Debit : Performance Security Receivable account
Credit : Cash/Bank account.
The nature of this account would be an asset account since it represents an amount that is expected to be received in the future.
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