Layaway Sales

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Overview of Layaway Sales Accounting

In a situation where a retailer offers layaway privileges to its customers, the retailer retains the merchandise and collects a cash deposit from the customer; the customer does not receive the merchandise until the full price is paid, and the retailer can retain the deposit if the customer fails to pay the remainder of the amount due.

GAAP Accounting for Layaway Sales

The SEC states that the retailer should only recognize revenue under the layaway program when it has delivered the merchandise to the customer. Prior to that time, deposits should be recorded as a liability. The SEC would object to recognizing deposits as revenue, on the grounds that the retailer still owns the merchandise, has only received a deposit, and has no right to the remainder of the purchase price.

IFRS Accounting for Layaway Sales

The seller only recognizes revenue when it delivers the goods. However, if the seller’s historical experience shows that most lay away transactions are converted into sales, then it can recognize revenue when it receives a significant deposit, provided that the goods are on hand, identified and ready for delivery.