Free Trial: TheSiteFactory.com

Escrow bank account accounting

Any non-Tax accounting topics go here.
#1
Posts:
22
Joined:
7-Sep-2019 7:45am
Location:
Florida
A title company (my client) maintains an escrow account for real estate closing funds. It is basically a clearing account. Title company is paid their fees and sellers get their proceeds. The account is being reconciled monthly in an escrow software. However, the balance in the account and associated liability are not reflected on the company financials. Because the accounts are in the FEIN of the title company, I believe the balances should be on the balance sheet. Client disagrees. According to the client "the funds in that account doesn't belong to me".

I'm confident that the title company is correctly reporting income AND that the escrow balances be reflecting on the company financials. Am I missing something?
 

#2
Joan TB  
Posts:
1348
Joined:
21-Apr-2014 9:08am
Location:
Texas
I always include the escrow bank accounts (and the resulting, matching liability) on the company's GL. To me, the issue is that even though the money is not theirs - it "belongs" to someone else - they are the ones controlling it because they are the only ones that can actually sign on the account.

Since it is a restricted asset, don't list it with the other cash accounts, but in another category like Other Assets as a restricted account.
 

#3
Posts:
1682
Joined:
21-Apr-2014 11:24am
Location:
North Carolina
I asked a similar question about lawyer trust accounts and got a variety of responses. In the end my former employer decided against reporting the trust account and I wasn’t bothered either way. However, following the Wirecard issue, I may be revising my view.
 

#4
Posts:
3145
Joined:
22-Apr-2014 3:06pm
Location:
WA State
I record them as a net item on the balance sheet. Otherwise, my relatively small title company client would be considered to have over $20M in assets, which is absurd. I feel this is a reasonable approach as these funds are legally restricted and physically segregated.
~Captcook
 

#5
Posts:
1105
Joined:
21-May-2018 7:50am
Location:
SC
I never include Trust fund balances on the primary company's balance sheet. It is not their cash and all guidance I have read on the matter--primarily state driven--indicates it is inappropriate to include on company financials. Every entity I have ever worked with that has to maintain trust/escrow accounts have had separate accounting data files and obviously bank accounts, so as to not even remotely risk commingling anything.
 

#6
Posts:
1682
Joined:
21-Apr-2014 11:24am
Location:
North Carolina
i cannot disagree with anything you say, Cornerstone, but do you think Wirecard situation will result in rules and best practices changing?
 

#7
Posts:
1105
Joined:
21-May-2018 7:50am
Location:
SC
SumwunLost wrote:i cannot disagree with anything you say, Cornerstone, but do you think Wirecard situation will result in rules and best practices changing?


Personally? I would like to see the cash balance offset by a liability for any Trust-type account. I have always found it asinine that they are maintained, separately, under every state guideline I have encountered.
 


Return to General Accounting



Who is online

Users browsing this forum: No registered users and 16 guests