Journal Entry for a Year to Date Mortgage for a rental property

AP10 · ‎December 16, 2018

I am trying to enter a year-to-date Journal Entry for a Mortgage on a rental property. I have entered the total amount owed at the beginning of the year minus the Escrow and minus the Interest which when I record it the amount owed now is correct. The problem I have is that when I entered the Interest which I put it towards an Interest Expense account it shows a negative amount on the report. What am I doing wrong? The Journal Entry goes as follows: Debit: Asset (Rental Home) Credit: Escrow Amount, Credit: Interest Amount, Credit: Balance-Liability Account. Can't figure out why Interest Expense shows negative amount. Please Advise!

qbteachmt · ‎December 17, 2018

This is Not a problem: "The problem is I do not get the mortgage statement for each of the properties each month so I was going to do one JE for each of the properties at the end of the year so I have that information in QB."

You know your payment amount. You can enter the Split according to an amortization schedule, or get the transaction details and running balance from the lender's website, perhaps Quarterly. You can split the checks later to refine how you entered the split, then reconcile the loan account to the lender's running balance and the Escrow account to the running balance.

"I thought it would be the easiest not getting all the statements like I need."

Until you realize the lender made an error and that is 8 months back, and now you have trouble getting it fixed. This is Real Money. You need to manage the flow timely enough to monitor everything.

"The accountant will only want totals from these properties"

And wants to see you managed your data properly, and reconciled accounts are Proof of data verification.

Or, post the entire payment with two splits. They notify you what is the escrow portion, so split that into Loan and Escrow. Later, you JE only Debit Interest Expense and Credit Liability (increasing it, as it runs too low when you didn't already split out Interest). Now reconcile the liability account (the mortgage).

Never use JE for Banking. That is the mistake for using QB.

"Thank you explaining all that! So basically I just need to create an account for the mortgage liability and escrow account?"

I thought you already have the Fixed asset and Mortgage Liability accounts; except yes, escrow is a Bank type. They have your Money and they spend your Money from it.

"Then write a check each month for each of the properties and split the check to go all three ways. Is that correct?"

If you pay one lender for multiple properties, you can list the breakdown on the one check's details. That's the point of Class tracking:

Loan account Prop A

Interest expense Prop A

Escrow Prop A

Do the same for Prop B.

If you have different lenders, you will need one Escrow bank for every place someone has Your Money. You need to manage that per their reporting.

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qbteachmt · ‎December 16, 2018

Are you just now transitioning this data into QB?

"I have entered the total amount owed at the beginning of the year minus the Escrow"

You credit Liability; you would use Deposit to Escrow Bank for the funds they have on hand in your name. You never enter Escrow Owed. That is not part of the mortgage. That is part of the Payment, which has four parts:

Principal

Interest

Taxes + Insurance Escrow

"and minus the Interest"

You never Project Interest that will be owed; that is not part of the Mortgage. That is a split detail on the payment when you make the payment.

"which when I record it the amount owed now is correct. The problem I have is that when I entered the Interest which I put it towards an Interest Expense account it shows a negative amount on the report."

Which report is "the" report?

"What am I doing wrong? The Journal Entry"

Right there; Journal Entry is a mistake. You are spending from Banking. You use Check Expense, not JE. You just bypassed proper reporting for Cash vs Accrual Basis, as well.

"goes as follows: Debit: Asset (Rental Home)"

That's also a mistake. You are not Buying the Asset again. You own the asset; it just isn't free and clear. There is Debt to pay. Never post to the asset, if you are not Buying it with that banking transaction.

"Credit: Escrow Amount"

Also wrong. Credit Escrow will reduce that Asset.

"Credit: Interest Amount"

And that's backwards, as well.

"Credit: Balance-Liability Account. Can't figure out why Interest Expense shows negative amount."

Here's the problem with trying to use JE; you have a lot backwards. You are paying for QB, which has banking Tools. Use the Banking Tools:

Split the check, payee to the Mortgage company or Escrow Company or whoever processes the funds.

Check for $5,000; split into three lines:

Mortgage Liability account

Escrow bank account

Interest Expense

= total you just Paid.

Then, you get evidence that they paid your taxes from Escrow, so you make a Check Expense against the Escrow bank. Enter the split details of Property Tax Expense here. Now you reconcile this Escrow Bank to your Escrow Statements. They have your Money. You need to manage it the same as a bank account.

If it helps, a Check or Spending from Bank or any asset is Reduced by the Credit. Everything else is a Debit. You had that entirely backwards, and just stop working that hard. Use the Check Expense input screen for Banking; that's why it exists. Use Bank Deposit for Bank Deposit. That's why it exists. Use Credit Card Charge expense for CC spending; that is why that function exists.

AP10 · ‎December 16, 2018

Yes, really all I am doing is just keeping track of Income and expenses for the properties. I am then just creating a report Profit by Class to see Income and Expenses. The problem is I do not get the mortgage statement for each of the properties each month so I was going to do one JE for each of the properties at the end of the year so I have that information in QB. I thought it would be the easiest not getting all the statements like I need. The accountant will only want totals from these properties

Thank you explaining all that! So basically I just need to create an account for the mortgage liability and escrow account? Then write a check each month for each of the properties and split the check to go all three ways. Is that correct?

qbteachmt · ‎December 17, 2018