Customer Prepayments & Trust Accounts

[Wolfman1952]

I receive payments from clients that (1) are security for future work to be
performed and (2) must be deposited in a client trust account.

It is unclear whether Small Business Accounting permits me to record the
transactions I must.

1. I receive the payment and deposit it into the client trust account. I
have not "earned" the payment; it still "belongs" to the client. My balance
sheet should show a positive balance in the trust account with a
corresponding liability in a trust payable account (in short, the client
funds are not my assets).
2. If I use funds from the client trust account to pay a client invoice, I
must write a check against the client trust account. SBA does not appear to
allow me to write such a check and apply it against a client invoice.

Any feedback (including a workaround) would be appreciated.

Thanks.

 

[Lance [MSFT]]

Here's what I'd do to handle this.

For #1, To record the deposit of the trust money, first create the liability
account for the trust liability and the bank account for the trust asset. To
enter the money received, use the journal entry form to debit the trust asset
account for the amount of funds received and credit the trust liability
account for the same amount.

For #2, For the invoice and payment for the trust account, there are three
steps, create the invoice, create the check, and receive the check as a
customer payment.

Before you start, create a vendor account for your own business so that you
can use it to write a check from the trust account to your business and
create a customer account for your trust customer, if you don't already have
one, so we record invoices and payments from him.

Step 1: Record the invoice
Use the invoice form to record the invoice against your customer account.
I'm assuming you've done this already, so I won't go into detail on this one.

Step 2: Write the check:

On the check form, choose the trust asset account in the pay from field and
set the check amount. Add a memo if you wish. In the grid below the check
information, we need to fill in a line for the trust liability account. In
the 'name' column pick the trust liability account and set the amount on that
line to match the check amount. Save the check. This will record the
following

Trust Asset - Credit for the check amount
A/P - Debit for the check amount.
A/P - Credit for the amount of the liability line on the grid, which should
also match the check amount.
Trust Liability - Debit for the amount for the liability line on the grid.

You can verify what it recorded by running the transaction journal command
on the actions menu of the check form.

The net result is that the funds in the trust assets are used up and you
have a check to your business from the trust account that you can track and
reconcile.

Step 3: record the payment

Open the Receive payment form, select the customer account for your trust
customer, enter the check amount, set payment method to check, select the
invoice in the grid, set the Deposit In field to whatever account you deposit
the check to, and save.

The trust customer's invoice will now be paid.


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