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Frequent Explorer **

How can I zero out a pair of liability accounts?

I recently took over bookkeeping for our small HOA. We used to be a tenancy-in-common (which meant we pooled our money and paid property taxes together on the house). 

Our last bookkeeper tracked property tax contributions and disbursements to the city in two _separate_ long term liability accounts -- one continually increasing, one continually decreasing.

We've converted over to condos so I'd like to zero out those liability accounts (since we're not longer collectively paying our taxes). What's the best way to apply a credit to the decreasing account and a debit to the increasing one?

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Best answer 06-04-2019

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Senior Explorer ***

Re: How can I zero out a pair of liability accounts?

If I'm reading this right, you have one liability account whose balance increases with every contribution you receive, and it never decreases; and you have one liability account showing a negative balance that grows more negative with every tax payment, and never moves toward zero.  So all contributions were credited to one liability, and all payments were debited against the other.

 

If this is the case and the balances are equal (one positive, one negative) then the liability wasn't tracked properly to begin with. You should be able to safely transfer the balance of one account over to the balance of the other, making both accounts zero.

 

But if this scenario is correct yet the balances don't match, you'll want to reconcile the two accounts against each other to find unmatched entries, and then make any needed adjustments. If you find that more contributions have been made than taxes paid, you may need to pay out some refunds. If it's okay with the homeowners, you could instead reallocate the overpayments to some other area of need that benefits everyone.

 

There's usually some rationale underlying odd setups like this, maybe something having to do with reporting or making it easier to complete tax returns. If you have important reports, you might want to run them all before and after so that you've got a handle on any changes.

 

Good luck!

 

1 Comment
Senior Explorer ***

Re: How can I zero out a pair of liability accounts?

If I'm reading this right, you have one liability account whose balance increases with every contribution you receive, and it never decreases; and you have one liability account showing a negative balance that grows more negative with every tax payment, and never moves toward zero.  So all contributions were credited to one liability, and all payments were debited against the other.

 

If this is the case and the balances are equal (one positive, one negative) then the liability wasn't tracked properly to begin with. You should be able to safely transfer the balance of one account over to the balance of the other, making both accounts zero.

 

But if this scenario is correct yet the balances don't match, you'll want to reconcile the two accounts against each other to find unmatched entries, and then make any needed adjustments. If you find that more contributions have been made than taxes paid, you may need to pay out some refunds. If it's okay with the homeowners, you could instead reallocate the overpayments to some other area of need that benefits everyone.

 

There's usually some rationale underlying odd setups like this, maybe something having to do with reporting or making it easier to complete tax returns. If you have important reports, you might want to run them all before and after so that you've got a handle on any changes.

 

Good luck!