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Credit unions have been a staple of the financial services industry in the United States since 1909. As credit unions continue to grow and/or age, it may lead to needing to purchase new fixed assets to replace old buildings and equipment. When considering this, it is important that any purchases are properly recorded for the financial statements. As a general rule, if you sign a contract to purchase equipment, you must capitalize the purchase only after you take possession of the goods. Similarly, if construction begins on a new office building, you must capitalize the work that has been performed, even if you have not received an invoice from the contractor. When capitalizing construction costs to the general ledger, make sure to use a “construction in process” (CIP) account and then post an entry to transfer the asset to a building account, once the asset is placed into service.
Another relevant topic to credit unions is the signing of a new or renewal contract with a card service provider (e.g. VISA or MasterCard). In order to incentivize the signing of a contract, the card service provider will offer a financial signing bonus. Unless the contract specifically states that the bonus is non-refundable in the event the contract is terminated early, the credit union must record the initial amount received as deferred revenue and then recognize the revenue according to the terms of the contract.
Should you have any questions about the accounting for a signing bonus, or the purchase of fixed assets, do not hesitate to contact GBQ. We not only empower our clients with the knowledge to be successful but also with the resources to reduce the costs associated with the construction of a new office building. Our state and local tax team has helped credit unions save substantial amounts by working with state and local governments to find applicable tax abatements and grants. Please reach out to a GBQ representative to talk about the ways we can help empower growth at your credit union.