What are Layaway Sales?

Retailers routinely offer layaway sales arrangements to their customers, where customers are allowed to set aside specific items, usually in exchange for a layaway deposit. The retailer retains custody of the goods until the customer pays the remaining balance on the goods. If the customer does not complete the purchase, then the retailer may be allowed to retain the deposit. This layaway plan is particularly useful for lower-income customers, who may not have sufficient funds to pay for the full amount of a purchase at one time.

Examples of Layaway Sales Transactions

Here are several examples of layaway sales:

Gift layaway. A parent chooses holiday gifts for her children, totaling $300. The store requires a $50 deposit to hold the items. The parent them pays $50 per week for five weeks to cover the remaining $250. Once the balance is fully paid, the parent picks up the gifts in time for the holidays.
Furniture layaway. A customer selects a dining table set priced at $1,200. The store sets a 25% down payment, so the customer pays $300 upfront. In addition, the customer agrees to pay $150 per month for six months. After the sixth payment, the customer schedules delivery of the dining table set.

SEC Accounting for Layaway Sales

According to the Securities and Exchange Commission, the seller cannot recognize revenue related to a layaway situation until it has delivered the held goods to the customer. Until that point, any cash received from the customer should be recorded as a liability. This is reasonable, since revenue recognition principles hold that goods or services should be delivered before revenue can be recognized.

IFRS Accounting for Layaway Sales

Under International Financial Reporting Standards, the seller only recognizes revenue when it delivers the goods. However, if the seller’s historical experience shows that most layaway 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.