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Level 1

How to make journal entry for Earnest Money deposit

 
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Best answer 12-10-2018

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Level 15

You don't use JE for this at all. If this is your money,...

You don't use JE for this at all.

If this is your money, then on the Expenses tab, post to an Other Asset account.

If this is money someone paid to you, then you set up an Other Charge Type Item linked to Liability and use it on a Sales Receipt for this name. That way, you know Whose Liability you are holding. You apply that or return it, later, using that same item.

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Level 15

You don't use JE for this at all. If this is your money,...

You don't use JE for this at all.

If this is your money, then on the Expenses tab, post to an Other Asset account.

If this is money someone paid to you, then you set up an Other Charge Type Item linked to Liability and use it on a Sales Receipt for this name. That way, you know Whose Liability you are holding. You apply that or return it, later, using that same item.

View solution in original post

Level 1

Re: You don't use JE for this at all. If this is your money,...

What is the correct procedure for when earnest money is returned (in the event of a cancelled sale, for example)? Is there a way to tie the check to the deposit so it zeroes out? 

Moderator

Re: You don't use JE for this at all. If this is your money,...

Greetings mhcholdingsllc,

 

I'll join on the conversation to help you record the returned earnest money.

 

You can write a check for this with the same liability account that was used for the sales receipt. This will zero out the earnest money.

 

Here's how:

  1. Select Banking on the left pane, then choose Write Checks.
  2. Choose the liability account.
  3. Enter the needed details.
  4. Click Save & Close.

Please reach out to me if you have additional question. I'd be happy to help. Have a lovely day!

Level 15

Re: You don't use JE for this at all. If this is your money,...

When someone gives you a prepayment that is Escrow or Trust, you make a sales receipt using the Other Charge type item for Liability. When you pay it out or list that on a check to the payee name, you use that same Other Charge item. On a Check, you use the item on the Items tab, and list the same Customer Name here that you used for the original Sales Receipt that acknowledged the original payment made to you. Now you can run a custom report on that liability account, set that report to Total by name, and when you see a name is at 0, you Reconcile that account. You always and only use the Ending Balance of Zero, because you are only clearing the activities that result in that name being at 0, which is why you use the report to manage balances. Make, retitle, and Memorize two versions of this report. One is titled All Activity. The Other is filtered on Cleared Status = No, and title Current Balances.

 

This is how you mange Trust accounts, Escrow Accounts, Tenant security deposits, legal retainers, and any other prepayment situation where you track this as Liability.

Level 1

Re: You don't use JE for this at all. If this is your money,...

Would this procedure still stand if it was earnest money that my holding company paid out and then had refunded to us? Also, thank you for your help! It is very appreciated.

Level 15

Re: You don't use JE for this at all.

This is Banking, not JE. If I pay someone, that is Banking, such as Check Expense entry details. If someone pays me, that is either part of my business, as a type of Sale or Charge, or I simply Deposited funds to my bank = No JE involved in anything here.

 

And if I am the one collecting earnest money, I need to track the Who and Why. That is Sales Receipt, not JE. That way, the return or application of the funds is also By Names, to keep track By Name. None of this is JE.

 

What matters here is Business Activity, not JE brute force  accounting. You want everything to be tracked and reportable by Name, by Reason, by Date, etc. It is best to avoid JE when Names will be also in use, and for Banking, you already have Banking transaction types.

Level 1

Re: You don't use JE for this at all. If this is your money,...

How would I record Earnest money in QB if I transferred it into my personal checking first, then paid it out to Title company from the personal checking?

QuickBooks Team

Re: You don't use JE for this at all. If this is your money,...

Hi there, @summerrentalsnow.

 

Thanks for reaching out to us. I'm here to help guide you on how to record Earnest money in QuickBooks Desktop. 

 

You can transfer funds between checking, savings, and money market accounts in your chart of accounts, but you cannot transfer funds between A/P and A/R accounts. For example, you might need to transfer funds from a savings account to a checking account to cover your weekly payroll, or you might want to transfer funds from your checking account to your petty cash account. 

 

To do this, here's how: 

  1. Go to the Banking menu and click Transfer Funds.
  2. In the Transfer Funds window, select the account from which you want to transfer the funds.
  3. Select the account to which you want to transfer the funds.
  4. Enter the amount that you want to transfer.
  5. Save the transaction.

If you need further assistance with the steps, I recommend contacting our QuickBooks Desktop Support Team. They have additional tools to do a screen share and walk you through the process.

 

Here's how you can contact our phone support:

  1. Follow the Official Intuit Contact link.
  2. Select your QuickBooks product.
  3. Select an issue type from the menu below, you need only to select two options for the contact information to appear.
  4. Click Get Phone Number at the bottom.

This will get you on the right track. Please know that I'm just a post away if you have any other questions about the Earnest money. Wishing you and your business continued success. 

Level 15

Re: You don't use JE for this at all. If this is your money,...

@summerrentalsnow 

 

What matters here: " if I transferred it into my personal checking first, then paid it out to Title company from the personal checking?"

 

Is:

What is this Activity? What is being purchased? Is that business or personal? If that is business, why did you move money to Personal, First? What is the Entity Type? What is your relationship to that entity, which allows you to remove business funds in the first place?

 

We don't know if this is buying, selling, business, personal, corporate, LLC, Partner or Shareholder Loan, Sole Proprietorship Draw...

Level 1

Re: You don't use JE for this at all. If this is your money,...

Answers:

What is this Activity?   Earnest money payment to Title Co.

What is being purchased?   Second home/investment property.

Is that business or personal?  Business

If that is business, why did you move money to Personal, First?  The saving account that we use for our real estate co. does not offer bill pay for the savings account.   I was avoiding a wire charge fee and I knew our personal checking offered bill pay for free.  Also, I do not have checks yet, that I could have used to pay out of this savings account, yes I said checks for the savings account.  

What is the Entity Type?  Real Estate Bus

What is your relationship to that entity, which allows you to remove business funds in the first place?  Owner

Level 15

Re: You don't use JE for this at all. If this is your money,...

@summerrentalsnow 

 

Thanks; a Business never owns a Residence. It cannot have a First Home or a Second Home. Are you using QB to manage Personal Finances?

 

Or, did you really mean "Real Estate investment" and not Second Home?

 

"Real Estate business" is not an Entity Type; that is your Operations. Example:

LLC managing 5 rental properties owned by the LLC. Nothing here is First Home or Second Home. It is Real Estate owned and managed by the LLC. The Taxes are filed on a 1065, every year. Or, "sole proprietorship" filing these on Sched C (as a business operation). Or, a Sched E? These get attached to your own personal 1040.

 

Right now, it seems you removed Equity = took a Draw. But, if the entire financial operation is tracking Personal, then you post this Expenditure not as an Expense (you didn't Spend it) but to a Bank type of account you name for Escrow, or to an Other Current Asset account you name for Escrow.

 

Later, if you close on the property, that Escrow is applied to the purchase and closing, the same as a downpayment. So, if this is Removing Business resources from my property management firm to buy myself a vacation property as my second home on the lake, that would be Draw from Equity and the escrow has nothing to do with the business.

 

That's why the details matter.

Level 1

Re: You don't use JE for this at all. If this is your money,...


@qbteachmt

Hey! Thanks for all your posts. I'm hoping you'll be able to help me with my question, as I feel like it's similar to this, and I want to make sure I'm following you correctly.

 

First, I'm new to the real estate world, but not entirely new to QuickBooks, so I apologize if the questions or lingo I use is rudimentary. 

 

I'm doing the bookkeeping for part my company's business. It's  mostly just managing expenses on the company credit card and a few bill payments here and there, but I do track part our investment portfolio as well. They've asked me to get the actual accounting team setup on Quickbooks for at least one of their accounts. This account is used as a fund for meeting capital calls and deposits for potential deals that we are interested in, but may not have fully approved yet. The money that goes in and out of this account is sometime's our Principals' money, and sometimes other investors. Right now, the accounting lead is keeping an excel file to track what money and expense are for which "potential deal". 

 

If I set this up in QuickBooks, I feel like it wouldn't be the same as the other portfolio investments I setup, which are "Fixed Assets", because these deals aren't 100% locked, is that correct? Would I just setup accounts for "Other Assets"? Or something different?

 

Halp! Lol.

Level 1

Re: You don't use JE for this at all. If this is your money,...

Hi,

 

Just want to make sure I handle this correctly.  Purchasing buildings, have escrow deposits that were previously posted to a deposit account but the assets have not yet been recorded.  I want to record the purchases (that were made in 2018) and want to make sure that I am recording the correct purchase prices.  It seems that the deposit amounts should be included to properly depreciate the assets as those amounts were part of the cost, but they are sitting in this deposit account (an asset account).  Do I just move them to the building account with the same date as the purchases of the buildings (via JE) since they were used as part of the payments for the buildings?

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