Accounting
On the balance sheet, an accounting entry appears as a secured loan and not as a 'sell' transaction. This is because the balance sheet shows economic substance and not legal form. Bonds given as collateral remain on the seller's balance sheet and corresponding liability is repo cash (the opposite applies for the buyer).
In order to retain collateral on the seller's balance sheet, the buyer has to give the seller right of substitution and right of close out. The legal transfer of securities is recorded in footnotes. Accounting rules may vary from jurisdiction to jurisdiction and clients should consult their own accounting advisors with respect to specific situations.
On the Profit and Loss account, the repo interest is treated as payment of interest on accruals basis.
It should be noted that this is as a broad guide and all counterparties should consult with their own accounting department before entering into repo transactions.
