What Is an Earnest Money Deposit?

Margin deposit is a type of deposit formed by a financial institution that issues a credit instrument with a settlement function to a customer, or provides financial services to fulfill relevant obligations according to a contract, and agrees to deposit a certain amount of funds into a specific account. After a customer defaults, a commercial bank has the right to deduct the deposits in the account directly to minimize bank losses.

Margin deposit

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Margin deposit is a type of deposit formed by a financial institution that issues a credit instrument with a settlement function to a customer, or provides financial services to fulfill relevant obligations according to a contract, and agrees to deposit a certain amount of funds into a specific account. After a customer defaults, a commercial bank has the right to deduct the deposits in the account directly to minimize bank losses.

Chinese name

Margin deposit

Nature

Credit instrument

Function

Issue settlement function for customers

Features

Financing

basic introduction

According to the different objects of margin guarantee, it can be divided into four categories: bank acceptance deposit deposit, letter of credit deposit, gold transaction deposit, and forward exchange settlement and sale deposit.

Letter of credit margin deposits refer to the amount of money deposited into a bank letter of credit margin account in accordance with regulations in order to obtain a letter of credit for an enterprise that adopts a method of settlement by letter of credit. An enterprise applying to a bank for the issuance of a letter of credit shall submit an application for solicitation, a letter of commitment for the applicant for a letter of credit, and a purchase and sales contract to the bank as required.

It is also a detailed account for other currency funds, "Other Currency Funds-Letter of Credit Margin." The calculation is as follows: When the enterprise fills in the "Letter of Credit Application" and deposits the L / C deposit with the bank, it should return the "Letter of Credit Application" returned under the seal of the bank. Debit the account of "Other Currency Funds-Letter of Credit Margin" and credit the account of "Bank Deposits". The enterprise received a notice from the issuing bank. According to the settlement letter of credit of the supplier and the attached invoice statement, debit "material purchase" or "raw materials", "inventory goods", "taxes payable-value-added tax (input tax) payable", and credit " Other monetary fundsletter of credit deposit account; when returning unused credit deposits to the bank that opened the account, debit the bank deposit account and credit other monetary fundsletter of credit deposit account.

When preparing the cash flow statement, whether the L / C margin deposit should be deducted from "cash" requires specific analysis, and attention should be paid to whether the use of margin deposit is restricted. If the use is restricted, it should be deducted from the cash at the end of the period.

The accounting standards define cash and cash equivalents in the cash flow statement: (1) Cash refers to the cash on hand of an enterprise and the deposits that can be used for payment at any time. Deposits that cannot be used for payment at any time are not cash. (2) Cash equivalents refer to investments held by enterprises with short maturity, strong liquidity, easy conversion to known amounts of cash, and low risk of value changes. Among them, "short term" generally refers to expiration within 3 months from the date of purchase. From the above, if the letter of credit margin can be used for payment within 3 months after the balance sheet date, it should not be deducted from "cash" when preparing the cash flow statement; otherwise, it cannot be used within 3 months after the balance sheet date. For payment, it shall be deducted from "cash" when preparing the cash flow statement.