Accounting treatment of bank guarantee

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 October 2012 How do we recognise bank guarantee in books and proper accounting treatment about this ,when bank guarantee issue to bank guarantee settelment.

Amol S Joglekar

Amol S Joglekar (Expert)
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17 October 2012 The commission paid on BG (BAnk Guarantee) shall be debited to Bank charges / Guarantee commission (Depending upon the materiality) When bank guarantee is invoked, the concerned banker pays the amount to your creditor and the amount should appear as loan in your books.

CA. Subhash Dangi

CA. Subhash Dangi (Expert)
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17 October 2012 Bank Guarantee is non fund based limit sanctioned by banks and other financial institutions.

BG is Contingent Liability and shown only in Notes to the Accounts.

There is no entry required when no collateral or security is given.

However, entry is required when any security by way of Cash margin like security deposit, FD etc and that can be shown under current assets in Balance sheet as Margin money on BG.

When BG is settled or expired, entry for margin money should be reversed.

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