JOURNALENTRY BANK GAURANTEE

Here are the journal entries and respective heads of account for the two scenarios:

*1. Issue of BG to Government

Department Journal Entry: Debit: Bank Guarantee Margin Account (Current Assets) [xxx] Credit: Bank Guarantee Issued Account (Current Liabilities) [xxx] Respective Heads of Account: - Bank Guarantee Margin Account (Current Assets): This account represents the margin amount blocked by the bank for issuing the BG. - Bank Guarantee Issued Account (Current Liabilities): This account represents the BG issued to the government department.

2. Cancellation of BG and credit back to account* Journal Entry: Debit: Bank Guarantee Issued Account (Current Liabilities) [xxx] Credit: Bank Account (Current Assets) [xxx]

Respective Heads of Account: -

Bank Guarantee Issued Account (Current Liabilities): This account is debited to cancel the earlier BG issued. - Bank Account (Current Assets): This account is credited with the amount returned by the bank after cancellation of the BG. 

Note: The respective heads of account may vary depending on the company's accounting policies and chart of accounts. 

Dear Rama Ji

Very Well Explained Thank you so much for your response 

Sir 

for cancellation you said to crdit bank account  but one doubt in our firm if we credit bank account its means we are reducing bank balance  usally when amount is received in bank we debit  bank account  little confusion  need help

Please Read carefully again my answer 

Bank Guarantee Margin Account...........Dr
    To Bank Guarantee Issued Account...........Cr

Summary:
The margin amount is blocked by the bank (treated as an Current Assets).
The BG issued is recorded as a Current Liability, representing the commitment made.

Bank Guarantee Issued Account...........Dr
    To Bank Account...........Cr

Summary:
The BG liability is canceled, reducing the outstanding commitment.
The refunded margin is credited back to the bank account.