Refundable Deposits Handout

Refundable Deposits Handout - allotted time. Deposits...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Refundable Deposits In some businesses it is typical to require customers to pay cash as a deposit when a specified event occurs. You probably have encountered such situations. When apartments are rented, security or damage deposits are often collected. Utility companies frequently collect deposits when service is begun. Similarly, deposits sometimes are required on returnable containers, to be refunded when the containers are returned, illustrated below. Example Rancor Chemical Company sells combustible chemicals in expensive, reusable containers. Customers are charged a deposit for each container delivered and receive a refund when the container is returned. Deposits collected on containers delivered during the year were $300,000. Deposits are forfeited if containers are not returned within one year. Ninety percent of the containers were returned within the
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: allotted time. Deposits charged are twice the actual cost of containers. The inventory of containers remains on the companys books until deposits are forfeited. When Deposits Are Collected Cash 300,000 Liability- refundable deposits 300,000 When Containers Are Returned * Liability refundable deposits 270,000 Cash 270,000 When Deposits Are Forfeited * Liability- refundable deposits 30,000 Revenue sale of containers 30,000 Cost of goods sold 15,000 Inventory containers 15,000 *Of course, not all the containers are returned at the same time, nor does the allotted time period to be able to make a return expire at the same time for all containers not returned. This is a simplistic assumption for the purposes of this example. Source: Intermediate Accounting , Spiceland, Sepe, Tomassini, 4 th Edition, McGraw Hill, pgs. 620-621....
View Full Document

Ask a homework question - tutors are online