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JE for future liability

JM Enjuto's Profile

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

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

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.

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