I would like to know how to handle Earnest Money Deposits for the purchase of a new building.
For a little background, our company is a flooring labor shop. We use QB Enterprises 2020. We are in the process of buying a new building which will be financed with two different loan companies.
My main question is in regards to how to handle the accounts associated with the acquisition of this new asset and the associated liabilities (the loans).
I have set up an Escrow Trust Account as an "Other Current Asset". We currently have $100k in this account that I transferred from our main Checking Account.
We have made two Good Faith Deposits to each different loan company. I am unsure how to handle this in QB. Will these deposits be Other Current Assets until the deal goes through? I have not set up the loan accounts in QB yet because I do not know how much we are approved for yet. I do know that these accounts will be set up as Long Term Liabilities upon the finalizations of funding.
Can someone please give me some guidance on how to manage these Good Faith Deposits for the time being, and after the deal goes through?
The earnest money deposits are current assets. You can create a new asset account to track these. When you enter the detailed line by line HUD-1 as a journal entry you will credit each earnest deposit in the deal. If, for some reason, a certain loan is not approved and the earnest money is returned then you would handle that as a refund against the asset account. Rarely,except maybe with 100% financing, does earnest money get returned instead of being applied to amounts due from buyer.
Now is the time, also, to set up your loan accounts. You can do it on the fly in the JE but all you need at this point is the name of the lender and the type of loan - you would NOT enter a beginning balance as that is recorded in the HUD-1 (HUD-1 is the standard form used for property purchase and/or sale and lists both buyer and seller detailed transactions)
As far as the building as an asset, you add total purchase price plus closing costs that are not loan costs (includes appraisal fee) , then remove land from total based on your tax assessed percentages of land versus building. Land cannot be depreciated or expensed in any fashion until sold. Buildings and improvements are depreciated over time based on the intended use. Commercial buildings, 39 years, residential rental 27.5
We are looking to purchase a new property for our business. We sent earnest money to the title company. Since that time, the purchase fell through and our earnest money payment has since been refunded in full. My understanding is to place the initial earnest money payment into the Account Type: Other Assets. I'm just not sure what the Detail Type from the dropdown list I should use in QuickBooks Online.
Would anyone know what is the correct category to use?