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When the loan closes and funds are dispersed to you, you will debit cash and credit notes payable.
If nothing is dispersed to you, you debit Funds Held in Escrow and credit notes payable
Then, when payments to the contractor are made, you will debit the asset account "Buildings" and credit the Funds held in escrow or cash account, whichever applies
This is not expensed; it is capitalized as it significantly improves or prolongs the useful life of the building.
You can alternatively make a separate asset account called "Roof" if you don't want to add this to the balance in your buildings account
Do you have any questions? Is there anything else that I can assist you with today? To correct any expense that has been placed to roof replacement expense, debit the asset account (buildings or roof) and credit roof replacement expense
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As this is a condominium, we don't have a capitalized building account and that is the problem. We are on Cash Basis Accounting. I am the treasurer, however, we have a property management company who pays our bills and issues our monthly financial reports. We have an Operating account as well as a Reserve account. Expenses such as Deck Replacement, Fence replacement have been paid for from the Reserve account and would be capitalized, if we had an asset account Buildings. As we didn't have sufficient Reserve funds to replace the roofs, it was necessary to take out the loan.
If you are cash basis, then just report it to expense and you should be fine
At loan closing, Escrow Account was debited and Note Payable was credited on the Balance Sheet. Payments to contractor have been made, Roof replacement expense (Reserves) has been debited and the Escrow account has been credited. With only the final payment still due the contractor, as of 9/30/13, Net Income on the Reserve Report is ($325,864.42). The accounting manager @ the property mgnt company 1st said that when payments were made to the contractor Roof replacement (Reserves) would be debited and Loan Proceeds income would be credited. Now she said she can't do it this way as she would have no way to zero out the escrow account. We seem to be missing something here, the Loan Proceeds?
So, at year end, we will have Net Income of ($325,864.26+) as we don't have an asset account for Buildings?
That would be correct, you would have a loss of the amount that you paid for the roof replacement
Is there anything else that I can assist you with today?