USA Sub-metered electric billing

[aceboogie]

Hi, I am a newbie here.

I believe there are a couple of ways to do this but what is the best way in your opinion.

I have a rental property. There is one electric meter for the property and multiple tenants (each tenant in a separate unit). I use a sub meter system that tracks the individual tenants' electric usage. I invoice the tenants for their usage. I am getting everything entered into QuickBooks Online and need to know how to account for this. When I get my official utility bill, invoice the tenants, then receive tenants electric payments...how should I do this?

Thanks in advance for any help.

 

[Fidget]

I would create a Utilities - Electricity Account to record the full bill, then have accounts for the respective tenants to recharge it out again. So, you would have:

Dr: Utilities - Electricity (with the full amount of the bill)
Cr: Supplier of Electricity (with the full amount of the bill)

Presumably, you pay the bill first then recharge it to tenants? So you'll have:

Dr: Supplier of Electricity (with full amount of bill when you pay it)
Cr: Bank (with full amount of bill when you pay it)

Then you'll have debtor accounts for the respective tenants which will record the amounts recharged to the them:

Dr: Tenant #1 - Electricity
Cr: Utilities - Electricity recharged to Tenant #1

Dr: Tenant #2 - Electricity
Cr: Utilities - Electricity recharged to Tenant #2

...and so on so that the net effect is zero in the utilities account for electricity, but you have an audit trail of how much the bill was and how much each tenant was recharged for it.

Then when the tenants pay, it'll just be:

Dr: Bank
Cr: Tenant account

 

[aceboogie]

Ok, so record the master bill, then pay the master bill.
But is DR: Tenant#1 - Electricity, an expense account or an income account?
and/or like wise...is CR:Utilities-Electricity recharged to Tenant#1 income act or a expense act?

at the bottom of your reply is Cr: Tenant account the same as "Tenant #X - Electricity"

I can see it going a couple ways. I know I am missing something though. Hope you can help some more.

 

[Fidget]

Tenant#1, Tenant#2 etc accounts are Debtor accounts - for people who owe you money. The Utilities: Electricity is the expense account. And the Electricity company has a creditor account because it is owed money. So, simple example:

Electricity company invoices you for $1000 and you know it is going to be split Tenant#1 $600, Tenant#2 $400. So,

Dr: Utilities - Electricity $1000
Cr: Electricity Supplier a/c $1000

This records the original invoice from the electricity company.

Next, pay the invoice:

Dr: Electricity Supplier a/c $1000
Cr: Bank $1000

So, now the electricity supplier a/c is zero - because you don't owe it anything now since the invoice has been paid, and there's a debit in the utilities account of $1000 that needs to be recharged to your tenants. So, you raise the two invoices to your tenants, and your entries to record them are:

Dr: Tenant#1 account $600
Cr: Utilities account $600

Dr: Tenant#2 account $400
Cr: Utilities account $400

You can see this posts a total credit of $1000 to the utilities account, which cancels out the debit for $1000, so the balance is zero. This is correct as ultimately, the electricity is not your expense.

Then when you receive the payment from your tenants, the entries will be:

Dr: Bank $600
Cr: Tenant#1 account $600

Dr: Bank $400
Cr: Tenant#2 account $400

This puts the $1000 back into the bank that you paid out to start with, and brings the tenant accounts back to zero as they don't owe you any money now that they've paid.

That might all seem a bit long-winded, but it's straightforward and gives a nice, tidy audit trail of how much original bills were and how that was split out between tenants. And that's what you need because when it comes to recharging a single amount back out to several people, things can get messy very quickly if you use shortcuts.

Anyway, hope this helps.

 

[aceboogie]

Ok. I get this process. Thanks a bunch.

It feels like this would remove the expense from the P/L, but expense accounts don't get cleared out until the end of the year, or in an instance like this it seems. Is this correct?

A debtor account is like an expense account it sounds like but is used to track the debt owed to me?
I use QB and I don't see "debtor account" obviously...the terminology/idea specifically I understand but the actual designation within the GL must be on the current liabilities side of the equation as an expense?

Appreciate your patience...I am still learning.

 

[Fidget]

The expense account would be cleared out as soon as you invoice the tenants because the original debit of the $1000 when you record the original invoice would then have $1000 credited against it bringing the total to zero.

So, if I put that into a T-Account for you to illustrate. Say the original invoice was dated 01 May 2016, and you recharged your tenants on 10 May 2016.

Also, a debtor account is not an expense account. It's an asset account in the balance sheet.

 

[aceboogie]

Ok. Got it.
Though, in my case fwiw, some of the utility bill I pay directly as part of the common area usage. Would I then need a Landlord Utilities-Electricity debtor account to which the portion of the bill I pay would be invoiced? I am set up as a customer, and all the tenants are sub-customers in QB.

 

[Fidget]

By the sounds of it, the common usage expense is an overhead of your business, so it belongs in the accounts. Presumably when the original bill comes in it is address to you? If so, when you record it and then recharge back out what the tenants have used, you'd be left with a balance on the Utilities - Electricity account, which represents the common usage element being covered by the business. So you wouldn't recharge that.

 

[Larry Bailey]

I think I would handle this as follows:
1. When bill arrives pay it and record the payment as a Dr to Electric Expense and Cr to Cash.
2. Prepare a JE posting a Dr to A/R Tenant #1 for $600 and A/R Tenant #2 for $400 and a Cr to Electric Expense of $1000.
3. Bill your Tenants
4. When Tenants pay, record payment as Dr to Cash and Cr to A/R for Tenants.

You now have no electric expense on the P&L and have a record of how much each tenant owes you and who has paid or not paid. Who knows, you may have to write the A/R from Tenant off to Bad Debt sometime in the future.