Hi, I belong to a bike club. Ride leaders get credits that they can redeem in the future for special bike clothing that the club purchases in advance. What would be the accounting entries to: 1. Register the liability related to the credits we owe? 2. Reduce the liability when the credits are redeemed? Thank you
JE for future liability
Answers
I would treat it pretty much treat this issue like warranty accounting. Why, because in that in a future period you have a cost.
So on a monthly basis, the number of credits earned * some $ value = $x.
Ride Leader Expense $x
Ride Leader Liability $x
When they redeem the clothing
Ride Leader Liability $x
Inventory $x
At some point you would true-up the liability since some members will leave/stop riding, etc. without either earning enough credits or exercise there option to receive the clothing. Just reverse the first entry.