Answer to Question #110524 in Accounting for Dominaye Taylor

Question

Entered into an agreement with a contractor for $65,000. The contractor will provide services at a future date. How should this be recorded as a journal entry?

Answer 1

No, journal entry is required.

When parties enter into an agreement for a contract for future transaction, the company is neither decreasing or increasing asset nor liability at the time of this signing. Therefore, a mere entry into an agreement does not require a journal entry by itself. The journal entry could only be recorded if cash or other asset has been exchanged during the contract signing.

However, the parties are required to disclosed in the notes to the financial statements significant commitments which are in the contract.