Final answer:
The contract is not recorded until it is legally binding, which is when it becomes enforceable and both parties are obligated to perform their specified duties.
Step-by-step explanation:
The signing of a contract by the parties is not recorded in the journal entries until the contract is legally binding. This means the contract must have been drafted, reviewed, and approved. Beyond drafting and review, approval is critical, but it is the binding nature which makes the contract enforceable and necessitates its recording in financial or legal records.
When a contract is legally binding, it indicates that it has satisfied all necessary legal requirements and that both parties are obligated to perform their specified duties as stated in the agreement, thus making it effective and giving rise to the need for recording the transaction.