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Kona Rural Electric Accounting for Customer Deposits

80. The Kona Rural Electric Co-op (KREC) is an accrual basis public entity. All new customers are required to pay a deposit equal to 3 times the customer's monthly bill or $100, whichever is greater. The purpose of the deposit is to ensure that timely payment is made on accounts. The funds so received are not segregated from other KREC funds and are used in ordinary course of business. Interest at the rate of 5% is paid annually on the deposits. Customers may elect to receive a check for the interest or may accept the payment as credit on their monthly bill.

KREC's policy is to refund the deposit when a customer discontinues service or has had made timely monthly payments for 8 consecutive months or for 9 of 12 consecutive months. When deposits are refunded, interest is paid on the deposit through the date of the refund. KREC's experience with the deposit requirement is 80% of all deposits are returned within 1 year of receipt. Approx 5% of all deposits are ultimately used to satisfy delinquent customer accounts.

KREC would like to know whether the deposits should be included in income when they are received or deferred until they are used to satisfy customer accounts.

Solution Preview

Example A Kona Rural Electric Co-Op, actually uses the money in the course of their business, therefore it is recognized as income to the company. When the deposit is paid back, it ...

Solution Summary

The solution provides accounting for customer deposits for Kona Rural Electric.