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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 12046
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am a Senior Account for a Commercial Real Estate Property

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Hello. I am a Senior Account for a Commercial Real Estate Property Management Company. When your taxes and insurance are escrowed, do you also accrue the monthly expense? (I am almost certain this would be double booking but an explanation would be extremely helpful). Thank you!

Hi, My name's Lane. I can help here.

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TO dot the i's and cross the t's here you SHOULD set up a current asset accountn (prepaid insurance).

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You then deduct the expense during the 1-2 times per year your taxes and insurance are paid.

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(This is to in complete compliance with GAAP accounting)

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If your objective, however is to, see a monthly P&L, for example, that's reflecting when you paid those expenses "out of pocket," so to speak, then you wouldn't be the first.

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But to be completely compliant, you'll create a current asset to represent the escrow.

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While your P&L will not reflect this "monthly expense", your cashflow should. The dollars going into Escrow should represent negative cash. On a monthly basis, your cashflow is more important than P&L. At the end of the year, all expenses are in as expected. You can then divide by 12 to get your AVG P&L per month.

Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

Otherwise I’m working for no crediting at all here

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Thank you!

Lane

I hold a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

Customer: replied 11 months ago.
This did not answer my question. I asked: When your taxes and insurance are escrowed, do you also accrue the monthly expenses?. Basically each month, we pay the lender for a tax and insurance escrow amount with our mortgage principal payment. This is then reflected in an asset account for tax and insurance escrow. I have accountants who are also accruing the tax and insurances in the expense account. I need an explanation how this is double booking.

Do you mean do you acgtually EXPENSE the monthly expense?

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When you use an escrow account to book the monthly payment into (rather than expensing the payment as if it went directly to the insurance company, you ARE accruing the expense)

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Here's how this should look each month as you make the payment into escrow.

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You debit a prepaid asset account (called prepaid expenses) $100

You credit Cash $100

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Then in the month where the insurance company is actually paid (lets say the payment is sent from escrow every 6 months)

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Credit the prepaid asset (prepaid expenses) for $600

Debit Insurance expense $600

Hi,

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I’m just checking back in to see how things are going.

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Did my answer help?

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Let me know if you need more here.

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Lane

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