ASC

ASC 405-942

Financial Services—Depository and Lending

405 Liabilities

Download JSONDownload Markdown17 paragraphs · 8 sectionsJump to summary

Source downloaded: .Record version 366213912088. Effective date must be checked in the source.

In brief

IntermediateRecognitionPresentationDisclosureIndustry-specific

This Subtopic governs how depository and lending institutions recognize, measure, present, and disclose deposit liabilities and short-sale obligations. Deposit liabilities are recognized when deposits are received (not when funds are collected), with deposit float recorded as both an asset and a liability, and credit unions must present member share/savings accounts unequivocally as liabilities. Short sales ("securities sold, not yet purchased") are reported as liabilities measured at fair value through income, with interest on short positions accrued as interest expense.

Key points (7)
  • Obligations incurred in short sales are reported as liabilities, generally called securities sold, not yet purchased (405-942-25-1), with additional guidance in 815-10-55-57.
  • Short-sale obligations are subsequently measured at fair value through the income statement at each reporting date with interest accrued as interest expense (405-942-35-1); the fair value adjustment is classified with gains and losses on securities (405-942-45-1).
  • A deposit liability is recognized when deposits are received, not when the institution collects the funds; deposit float (checks in process of collection, not available for withdrawal) is recorded as both an asset and a liability, and deposits are not recorded based solely on collections (405-942-25-3).
  • Credit unions and corporate credit unions must report all member deposit accounts, including member shares, unequivocally as liabilities on the statement of financial condition (405-942-25-4; 405-942-55-1).
  • Credit union statements of financial condition must either present deposit/savings accounts as the first item in the liabilities and equity section or include them within a captioned total-liabilities subtotal; an unclassified presentation showing savings accounts last before retained earnings is unacceptable (405-942-45-3; 405-942-55-2).
  • Interest on member accounts (commonly called dividends) is reported as expense in the statement of income, and interest payable to members is included as a liability (405-942-45-4).
  • Required deposit disclosures include aggregate time deposits (including CDs) at or above the insured limit, instruments pledged as collateral for deposits not otherwise disclosed under Topic 860, demand deposits reclassified as loans such as overdrafts, and deposits received on terms other than those available in the normal course of business (405-942-50-1).

For students. Two traps: deposits become liabilities when received, not when the check clears (float sits on both sides of the balance sheet), and credit union "shares"/savings accounts are liabilities despite the equity-sounding label and the "dividend" terminology used for interest paid on them.

deposit liabilitiesdeposit floatsecurities sold, not yet purchasedshort salesmember share accountsredeemable preferred stock of a subsidiaryuninsured time depositscredit union presentation

Machine-generated study aid for ASC 405-942. Check the source paragraphs below.

405-942-00Status

Source downloaded: .Record version d158c4e68e1f. Effective date must be checked in the source.

405-942-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
942-405-50-1 Amended Maintenance Update 2018-02 (PDF) 02/02/2018
942-405-50-1 Amended Maintenance Update 2014-07 (PDF) 03/17/2014

405-942-05Overview and Background

Source downloaded: .Record version e8c876a6bad9. Effective date must be checked in the source.

405-942-05-1
This Subtopic provides disclosure and implementation guidance for deposit liabilities by financial institutions.

405-942-15Scope and Scope Exceptions

Source downloaded: .Record version 6dfba4cafa02. Effective date must be checked in the source.

Overall Guidance

405-942-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 942-10-15.

405-942-25Recognition

Source downloaded: .Record version 613eba49205b. Effective date must be checked in the source.

Short Sales of Securities

405-942-25-1
The obligations incurred in short sales shall be reported as liabilities. Such liabilities are generally called securities sold, not yet purchased.
405-942-25-2
See paragraph 815-10-55-57 for additional guidance concerning short sales.

Deposits

405-942-25-3
The institution's liability for deposits originates and shall be recognized at the time deposits are received rather than when the institution collects the funds. Checks that are deposited by customers and that are in the process of collection and are currently not available for withdrawal (deposit float) shall be recorded as assets and liabilities. Deposits shall not be recorded based solely on collections.

Member Deposits

405-942-25-4
Credit unions and corporate credit unions shall report unequivocally all member deposit accounts, including member shares, as liabilities in the statement of financial condition.

405-942-35Subsequent Measurement

Source downloaded: .Record version 4ec2f820be2d. Effective date must be checked in the source.

Short Sales of Securities

405-942-35-1
The obligations incurred in short sales shall be subsequently measured at fair value through the income statement at each reporting date. Interest on the short positions shall be accrued periodically and reported as interest expense.

405-942-45Other Presentation Matters

Source downloaded: .Record version 0b3e9ec3c03c. Effective date must be checked in the source.

Short Sales of Securities

405-942-45-1
The fair value adjustment on short sales of securities shall be classified in the income statement with gains and losses on securities.

Redeemable Preferred Stock Dividends

405-942-45-2
For redeemable preferred stock of a subsidiary accounted for as a liability in a parent's consolidated financial statements, dividends shall be included in the determination of income as interest expense. For redeemable preferred stock of a subsidiary accounted for as a noncontrolling interest in a subsidiary in a parent's consolidated financial statements, the dividends shall be presented as noncontrolling interest in income of a subsidiary. For redeemable preferred stock of a parent treated as capital, but displayed in the balance sheet as mezzanine capital, dividends shall be included in the statement of changes in shareholders' equity.

Member Deposits

405-942-45-3
The statement of financial condition of credit unions and corporate credit unions shall either:
  1. a
    Present deposit accounts as the first item in the liabilities and equity section
  2. b
    Include deposit accounts within a captioned subtotal for total liabilities.
An unclassified presentation whereby all liabilities and equity are shown together under one subheading and savings accounts are presented as the last item before retained earnings shall not be an acceptable presentation.
405-942-45-4
The interest paid or accrued on these accounts, commonly referred to as dividends, shall be reported as an expense on the statement of income, and the amount of interest payable to members shall be included as a liability in the statement of financial condition.

405-942-50Disclosure

Source downloaded: .Record version c070bef8ec47. Effective date must be checked in the source.

Deposits

405-942-50-1
Disclosures about deposit liabilities shall include all of the following:
  1. a
    The aggregate amount of time deposit accounts (including certificates of deposit) in denominations that meet or exceed the insured limit at the balance sheet date
  2. b
    Securities, mortgage loans, or other financial instruments that serve as collateral for deposits, that are otherwise not disclosed under Topic 860
  3. c
    The aggregate amount of any demand deposits that have been reclassified as loan balances, such as overdrafts, at the balance-sheet date
  4. d
    Deposits that are received on terms other than those available in the normal course of business.

405-942-55Implementation Guidance and Illustrations

Source downloaded: .Record version 5045bdf37962. Effective date must be checked in the source.

Implementation Guidance

405-942-55-1
For a credit union to be in compliance with the Codification, it must be unequivocal on the face of the statement of financial condition that savings accounts are a liability.
405-942-55-2
A credit union statement of financial condition shall either:
  1. a
    Present savings accounts as the first item in the liabilities and equity section
  2. b
    Include savings accounts within a captioned subtotal for total liabilities.

Illustrations

405-942-55-3
This Example provides an illustration in which it is unequivocal on the face of the statement of financial condition that savings accounts are a liability.
  • Sample Credit Union
  • Statements of Financial Condition
  • December 31, 19X2 and 19X1
  • 19X2 19X1 Assets "Loans to members, net of allowance for loan losses (Note 3)" " $44,800,000 " " $40,900,000 " Cash " 700,000 " " 800,000 " Investments (Notes 2 and 6) " 5,000,000 " " 7,000,000 " Accrued interest receivable " 100,000 " " 70,000 " Property and equipment (Note 4) " 1,050,000 " " 900,000 " "Central liquidity facility stock, at cost" " 250,000 " " 250,000 " Other assets " 50,000 " " 40,000 " Total assets " $51,950,000 " " $49,960,000 " Liabilities and Equity Savings accounts (Note 5) " $42,600,000 " " $42,460,000 " Borrowed funds (Note 6) " 5,000,000 " " 4,000,000 " Accrued and other liabilities " 800,000 " " 500,000 " Commitments and contingent liabilities (Note 9) - - Total liabilities " 48,400,000 " " 46,960,000 " "Retained earnings, substantially restricted (Note 7)" " 3,550,000 " " 3,000,000 " Total liabilities and equity " $51,950,000 " " $49,960,000 "
  • The accompanying notes are an integral part of these financial statements. [For purposes of these illustrations, the notes to financial statements have not been included in this or the following Example.]
405-942-55-4
This Example provides an illustration in which it is unequivocal on the face of the statement of financial condition that savings accounts are a liability.
  • Sample Credit Union
  • Statements of Financial Condition
  • December 31, 19X2 and 19X1
  • 19X2 19X1 Assets "Loans to members, net of allowance for loan losses (Note 3)" " $44,800,000 " " $40,900,000 " Cash " 700,000 " " 800,000 " Investments (Notes 2 and 6) " 5,000,000 " " 7,000,000 " Accrued interest receivable " 100,000 " " 70,000 " Property and equipment (Note 4) " 1,050,000 " " 900,000 " "Central liquidity facility stock, at cost" " 250,000 " " 250,000 " Other assets " 50,000 " " 40,000 " Total assets " $51,950,000 " " $49,960,000 " Liabilities and Equity Borrowed funds (Note 6) " $5,000,000 " " $4,000,000 " Accrued and other liabilities " 800,000 " " 500,000 " Commitments and contingent liabilities (Note 9) - - Liabilities excluding savings accounts " 5,800,000 " " 4,500,000 " Savings accounts (Note 5) " 42,600,000 " " 42,460,000 " Total liabilities " 48,400,000 " " 46,960,000 " "Retained earnings, substantially restricted (Note 7)" " 3,550,000 " " 3,000,000 " Total liabilities and equity " $51,950,000 " " $49,960,000 "
  • The accompanying notes are an integral part of these financial statements.

Related subtopics