Question

Rolling Reserve Question

Forum|Forum|7 years ago
December 24, 2018
2 replies
0 views

Hello,

My business collects payments for the service it provides via processor.

How do I report the following scenario:
A processor keeps 10% of the processed funds in a rolling reserve account.
It means that there is always 10% of the received payments in a special side account at the processor's end, that is not yet released to my bank account.

Do I report this income even though the funds were not deposited in the bank?
The client was already charged for the service, so the sale is done.

On the same topic - I had a case when I stopped working with a specific processor and it held the remaining owed funds for 180 days. At the end of 180 days, it released the funds, however, it was already in the next year (while the actual sales for this money was done in the previous year).
In what year of the two do I report this income?

QuickBooks Online

Rustler

Level 15

Yes that reserve, the hold back, is part of your income, you report it as of the date it is paid to the processor. he is just acting as your agent for the transaction. But the income is booked when you enter the sale at the full price

the hold back is just where it is located, not any different then if you split a deposit between two bank accounts. And when he does pay it to you, it is just moving where the money is, a transfer as it were, it is not additional income.

E

EBFinancialsAuthor

I'm a bit confused in light of what @Malcolm Ziman wrote in his reply to my question.
What you explain applies in both reporting methods cash and accrual?
The logic says it applies only in accrual basis. Please advise.

Also, on the same matter, I forgot to mention that during those 180 when the funds were held with the processor, it deducted some amounts off it due to chargebacks that arrived during this time.
So eventually the amount that was settled to the bank was lower than the original one that had been placed on hold. How do I treat those deductions bookkeeping-wise in the scope of your explanation?

M

Malcolm Ziman

Level 4

@EBFinancials wrote:
What you explain applies in both reporting methods cash and accrual?
The logic says it applies only in accrual basis. Please advise.

Income can be recognized at the occurrence of one of two events: 1) when service is provided (accrual method) or 2) when payment is received (cash method). It's quite clear when these events happen. There is no overlap or ambiguity here. You can run reports using either method. Accrual method uses the Invoice (or Credit Memo) date. Cash method uses the Receive Payment date

it deducted some amounts off it due to chargebacks

That's a Credit Memo type transaction (a negative invoice)

M

Malcolm Ziman

Level 4

@EBFinancials wrote:

A processor keeps 10% of the processed funds in a rolling reserve account.
It means that there is always 10% of the received payments in a special side account at the processor's end, that is not yet released to my bank account.

Given that the funds are not yet released to your bank account, you have not received the money. "Reserve account" is the debtor's own internal definition and does not mean you have received the money. You do not control it or have access to it.

If true, there is no payment transaction to record for the 10%, and so on the cash basis, this is not income.

On the accrual basis, the income was created when client was charged for the service.

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