Bankruptcy and Customer Deposit

by Zmrahi
(Calgary, Alberta, Canada)

A private company received an amount on deposit as an advance against their contracting work, but during the contract work, the other company went bankrupt.

In this case, how will the advanced money on deposit be treated on the financial statements? What about the GST, if applicable?

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Hello Zmrahi,

Assuming that the work completed prior to the bankruptcy exceeds the advance deposit, I would create an invoice for the work completed and/or amounts due. Any GST applicable should be billed correctly on the invoice.

Once that is done, I would apply the advance as partial payment of the invoice and write-off the remainder of the invoiced amount owing to bad debts.

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