AccountingBLOCK - Accounting Forums

If a customer pays for an item that has not been shipped, I am confused as to how to account for that liability and which period should the liability appear in?

For eg. lets just say that an item was invoiced in august and now it is September and payment has not been received on the invoice yet. Should this transaction show as a liabilty on August's balance sheet, because that's when it was invoiced. Or should it not appear as a liability until payment is received?

Thanks...

You have no liability until you receive prepayment. The date you receive payment is the date you incur the liability. If there is no payment received then there is no liability... I hope that answered your question.

yes that pretty much answer my question, thanks for the response...

I disagree, with supporting argument for your position


My accounting professors and I disagreed on application of contract law. Payment under accrual method are deemed
obligations upon order completion (dependant upon legal enforcement). However, "obligation" is a term of law art. My
law professors chime an obligation is dependent upon consideration or terms. Accounting "Accrual" indicates the "obligation"
is dependent upon a legal obligation (identification of a defendant).

Circularly, if an order is unaccompanied by a contract (ex.: Supplies estimate requested; 30 day "money-back"; or, dependent upon recipient ) is the
order an "order", hence "bookable"? I say, "It depends". If I am paid after inspection, payment is dependent upon FUTURE acceptance. Accrual academics
predominantly opine, "Yes". If the rule of accrual prevails, if the fax machine delivers an order (UCC contract rules) the order is valid. Non UCC contract law
differs.

See: The Battle of Invoices; Contract Terms under the UCC.