How to make journal entry for Earnest Money deposit

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? 

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!

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.

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.

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.

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?

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. 

@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...

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

@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.

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@qbteachmt

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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.

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?

I am selling multiple tracts of land. 2 of those tracts are under contract and I have the option fees in my hand.

Now when the sale goes through, the option fees will be listed on the HUD statement and the HUD statement does go in as a journal entry because I have to log the money in the bank on one side and the land loss on the other side from where I purchased it and also the settlement fees etc. ...

So if the option fee shows up in the HUD statement and the journal entry, do I still create the names of these buyers as "Customers" and enter the option fee checks as "Sales Receipts". 

If they back out we keep the money, if they buy we keep the money.

I assume since the option fee will be  a credit on the JE for the land sale - I'll do both.

You can create customers to record the fees, @florephi.

To record your sales income, you can enter them by adding a sales receipt or invoice.

To create a customer:

1. Go to the Customers menu and choose Customer Center.
2. Click the New Customer & Job drop-down arrow and select New Customer.
3. Enter information about the customer as needed.
4. Click OK.

Check this article for more information: Add and edit multiple customers, vendors, and items. 

From here, you can now create a sales receipt or an invoice. You’ll use a sales receipt the time they receive your service or product. If your customers don’t pay you in full, then you can create an invoice.

See these articles for more information:

• Create an invoice in QuickBooks Desktop
• Create sales receipts

Let me know if there's anything that you need. I'm always here to help. Have a wonderful day!

Hi,

We have sent payment of earnest money to a title company in pursuit of purchasing property.  Following your instruction, I'm looking to add this payment by creating an Other Asset account.  Going one step further, is there a specific Other Asset detail type I should be using for this in the Chart of Accounts?  

Also, I assume that payments for a building inspection and bank wire fees would just be added as expenses in my Chart of Accounts?

Thank you.

Yes, you're right! @R_Crane.

Once you purchase a property you can enter this as an asset account. In the meantime, it depends on you what detail type you enter. For more insight about this account, check out this article: Internal other current asset accounts.

Then, to can enter your payments for a building inspection and bank wire fees. You can create a normal expense. Here's how:

1. Go to the Banking menu and click Write Checks.
2. From the Bank account drop-down, select your account from there.
3. Enter the information needed
4. Click the Expenses tab to enter the correct accounts affecting the bank charge and income account. 
5. Review the total amount and then click Save & Close. 

On the other hand, to learn more about the different transaction workflows in QuickBooks you may check these articles:

• Accounts Payable workflows in QuickBooks Desktop
• Accounts Receivable workflows in QuickBooks Desktop

I'm just here if there's anything else that you need help with. You take care and have a great day!

How do you records Earnest Money received that is not going to be refunded?  Does it just go to Other Income as Option Money?

Thanks for joining us today, jeannecmiller.

You can create an advance payment/prepayment using the Receive Payment feature to record the Earnest Money received from your customer. 

For the account, it depends on where you want the amount to be deposited. You have two options for entering the prepayments or deposits, either by using Accounts Payable or an Asset account. I suggest consulting your accounting professional to know which option is best for you.

The followings are some easy steps to follow:

First, make sure you have the customer listed on Quickbooks. If you have already listed the customer on Quickbooks Online, then you can skip this step and continue to step

1. If not, go to Customers, then Customer Center.
2. Click New Customer & Job.
3. Create a new customer by filling out all the information.
4. Hit OK.

Once done, create a Receive Payment:

1. Go to Customers, then Receive Payments.
2. Find the customer from the Received from drop-down and enter the payment amount.
3. Click Save and Close.

There are no invoices being linked to at this time. The customer is making a prepayment that will be applied to future invoices to generate income.

To review the existing prepayments, you can run the Customer Balance Detail report.

1. Go to the Reports menu, then select Customers & Receivables.
2. Then, Vendor Balance Detail.
   
3. Select Customize Report, then go to the Filters tab.
4. Go to the Filters tab, then select Transaction Type from the list.
5. From the Account drop-down, select Payment.
6. Click OK.
   

Let me know if you have any follow-ups or other questions. I'm always here to help. Wishing you a good one.

what if the Mortgage company is paying you back for inspections you paid for out of pocket how is that payment recorded 

I can share some tips on how you can record that transaction, cooltimedulce5.

There are different ways of recording the payment you've received from the mortgage company. Assuming that they send you a refund check for a bill that is already paid, you can record a bank deposit for the reimbursement. Then, create a bill credit and link it to the deposit. Check out the steps I've listed below.

First, record a deposit for the vendor refund:
 

1. Select Banking from the sidebar menu.
2. Click Make Deposits.
3. If the Payments to Deposit window appears, click OK.
4. Select the vendor who sent you the refund from the Received from the drop-down menu.
5. In the From Account drop-down, choose Accounts Payable account.
6. In the Amount column, enter the actual amount of the check.
7. Click Save & Close.

Once done, make a bill credit for the refunded amount:

1. Select Vendors from the top menu bar, choose Enter Bills.
2. Tick the Credit radio button.
3. Select the appropriate vendor name.
4. Go to the Expenses tab, then enter the accounts on the original bill.
5. In the Amount column, enter the appropriate amount for each account.
6. Click Save and Close.

Lastly, link the deposit to the bill credit:
 

1. From the Vendors menu, select Pay Bills.
2. Check the Deposit that matches the Vendor check amount.
3. Select Set Credits and apply the Bill Credit you created earlier then select Done.
4. Select Pay Selected Bills, then select Done.

If you have a different scenario, you can browse this reference to be guided in recording the reimbursement: Record a vendor refund in QuickBooks Desktop. Additionally, here's an article that you can read to help track where your company stands in terms of expenses and accounts payable: Customize vendor reports.

I'm just a few clicks away if you have any other concerns or questions. Have a pleasant day ahead.

Did you figure it out how to record Earnest Money Deposit?

We received earnest money directly from purchaser. I recored Dr - Cash, but can't figure out what is the credit side. Is it an Other Current Assets or Other Current Liability? 

Thank you

Can you please explain why is it a Liability if someone paid Earnest Money directly to the company? 

Also, I can't find the Other Charge Type as Liability . Is it Other Current Liability ? should I use Trust Accounts - Liabilties or just Other current Liability ? 

Thank you in advance.