This has been causing me a bit of a headache but I think I have finally got my head around it and looking for confirmation that all this being accounted for correctly.
Company purchases cylinders fills them with gas and then sells them to customers.
The customer is charged a returnable deposit on the cylinder and the following can happen after the first initial sale:-
a) The customer returns with the empty cylinder and it is refilled so the customer is only charged for the gas.
b) The customer returns with the empty cylinder and receives a refund on the deposit
c) Sometimes the customer will never return the cylinder and effectively forfeit the deposit.
To my mind the cylinders are the property of the company and should be counted as stock and this will consist of two parts:-
(1) Unsold Cylinders on the company premises
(2) Cylinders held by the customers.
So it follows at the year end the company should recognise the following in the accounts:
Asset for stock held by customers
Liability for deposits due to customers
(these amounts will probably equal each other)
On an annual basis an assessment should be made on the likelihood of deposits being returned to customer. e.g. if a customer deposit was taken over two years ago then it is unlikely to be returned so the liability and stock should be reduced.
Now have to figure out how the accounting system is working for recording all of the above - still unsure how to account for te deposit returned to customer is this treated as a purchase so that the returned cylinder is brought back into stock on premises?
Any thoughts on all of this would be appreciated.