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Level 1

Reserve Fund Held by 3rd Party



I have a client using QuickBooks online that sells insurance policies and uses a 3rd party to handle the sale. On a weekly basis the 3rd party advances my clients funds for the sales made that week. But of the sales made that week the 3rd party charges a fee per sale as well as they hold back a portion of the sales and that is held in a reserve account. This reserve account is used for chargeback, policy cancellations, etc. My question is on the clients books in quickbooks what is the best way to treat the reserve fund? If the client were to terminate their contract with the 3rd party, once all policies were fully paid the client would receive the remaining amount in the reserve fund. The fund fluctuates as sales are made and when clients cancel but overall the account typically increases each month as more sales are made then clients cancel (more in then out). Would this make it a LT asset? Would I just create a reserve fund and have it on the BS?


Thanks in advance! 

2 Comments 2
Level 15

Reserve Fund Held by 3rd Party

Basically I see this as the other company holding a "bank account" kind of thing, so I would use a cash type bank account in QB, and show the increase and decrease in that account.


An asset account could be used, but it can be hard to move money back and forth in an asset account, hence the reason I use a bank type account, which is also an asset

Level 1

Reserve Fund Held by 3rd Party

Thanks for the reply. That makes sense to create a bank account for the fund, but I guess where I am stuck is what is the other side of the entry, retained earnings? Thanks!

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