How to Record a Letter of Guarantee (LG) Cash Margin Deposit
Recording cash blocked by the bank as collateral for issuing a performance or advance payment guarantee.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Restricted Cash (LG Margin) | Asset (+) | 10,000.00 | - |
| Cash in Bank | Asset (-) | - | 10,000.00 |
💡 Accountant's Note
Banks often require contractors to block 10-30% of the guarantee value as cash collateral. This is still the contractor's asset — it is reclassified from unrestricted cash to restricted cash.
Practitioner & Systems Framework
💻 ERP Architecture
Maintain a comprehensive Guarantee Register in the ERP linked to the Restricted Cash GL. The register should track LG number, project, expiry date, total value, and margin percentage. This is critical for managing working capital.
⚠️ Audit Flags
Verification of restricted cash via direct bank confirmations. Auditors check the guarantee register to ensure all margins are properly classified as non-current if the LG expiry is beyond 12 months.
📄 Required Documentation
Bank facility agreement detailing margin requirements, margin deduction advice, and updated LG register.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.